1. business and industrial
2. company
3. merger and acquisition

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION
If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your stockbroker
or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.
If you have sold or transferred all your shares in Greenheart Group Limited, you should at once hand this circular and the
accompanying form of proxy to the purchaser or the transferee or to the bank, stockbroker or other agent through whom the
sale or transfer was effected for transmission to the purchaser or transferee.
Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for
the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability
whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.
This circular is for information purpose only and does not constitute an invitation or offer to acquire, purchase or subscribe
for any securities of Greenheart Group Limited.
GREENHEART GROUP LIMITED
綠森集團有限公司*
(Incorporated in Bermuda with limited liability)
(Stock Code: 94)
(1) POSSIBLE ACQUISITION OF SHARES IN GREENHEART RESOURCES
HOLDINGS LIMITED AND DEBT INTERESTS UNDER THE GREENHEART
RESOURCES AGREEMENT BY NEWFOREST LIMITED AS SPECIAL DEALS;
(2) WAIVERS BY SILVER MOUNT GROUP LIMITED AS CONNECTED
TRANSACTION
AND
(3) NOTICE OF SPECIAL GENERAL MEETING
Independent Financial Adviser to the Independent Board Committee
and the Independent Shareholders
SOMERLEY CAPITAL LIMITED
Capitalised terms used in this cover page shall have the same meanings as those defined in the section headed “Definitions”
in this circular.
A letter from the Board is set out on pages 7 to 23 of this circular. A letter from the Independent Board Committee is set out
on pages 24 to 25 of this circular. A letter from Somerley Capital Limited, containing its advice to the Independent Board
Committee and the Independent Shareholders, is set out on pages 26 to 57 of this circular.
A notice convening the SGM to be held at Plaza Meeting Room, Regus Business Centre, 35/F., Central Plaza, 18 Harbour
Road, Wanchai, Hong Kong on Tuesday, 10 February 2015, at 10:30 a.m. is set out on pages 71 to 72 of this circular.
Whether or not you are able to attend the meeting, you are requested to complete the accompanying form of proxy in
accordance with the instructions printed thereon and return the same to the Company’s branch share Registrar and transfer
office in Hong Kong, Tricor Tengis Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as
possible and in any event not less than 48 hours before the time appointed for the holding of the SGM (or any adjournment
thereof). Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM
(or any adjournment thereof) should you so wish and in such event, the form of proxy shall be deemed to be revoked.
* for identification purpose only
23 January 2015
CONTENTS
Page
EXPECTED TIMETABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . 24
LETTER FROM SOMERLEY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
APPENDIX I
–
DETAILED TERMS OF THE OFFERS . . . . . . . . . . . . . . . . . . . . . . . . . 58
APPENDIX II
–
FINANCIAL INFORMATION OF THE GROUP . . . . . . . . . . . . . . . . . . 65
APPENDIX III
–
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
NOTICE OF SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
i
EXPECTED TIMETABLE
Below is an indicative timetable showing the key dates of the relevant events:
Event
Time & Date
Latest time and date for lodging forms of
proxy for the SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10:30 a.m. on Sunday, 8 February 2015
Time and date of the SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10:30 a.m on Tuesday, 10 February 2015
Publication of an announcement regarding the
poll results of the SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tuesday, 10 February 2015
If the approvals sought at the SGM are obtained:
Expected date of completion of the Share Purchase Agreement
and the Greenheart Resources Agreement (note 1) . . . . . . . . . . . . . . . . . . Wednesday, 25 February 2015
Note 1: Pursuant to the Share Purchase Agreement and the Greenheart Resources Agreement, the completion of the Share Purchase
Agreement is conditional on, and shall take place immediately following, the satisfaction of the Share Transfer Condition,
being the completion of the Greenheart Resources Agreement having occurred in accordance with its terms.
Note 2:A detailed timetable for the Offers will be included in the Composite Document. Pursuant to a letter from the Executive
dated 23 December 2014, the Executive granted consent to extend the latest time for the despatch of the Composite
Document to within seven (7) days from the date of Completion or 7 July 2015, whichever is the earlier.
Note 3:Dates and deadlines stated in this circular for events in the timetable are indicative only and may be extended or varied. Any
changes to the expected timetable will be announced as appropriate. All times and dates refer to Hong Kong local time.
Further announcement(s) will be made in relation to those events which are scheduled to take place
after the SGM as and when appropriate in accordance with applicable regulatory requirements.
ii
DEFINITIONS
In this circular, unless the context otherwise requires, the following terms have the meanings set
out below:
“acting in concert”
the same meaning ascribed to it under the Takeovers Code
“associate(s)”
the same meaning ascribed to it under the Takeovers Code and the
Listing Rules, as the context may require from time to time
“Board”
the board of Directors of the Company
“Business Day”
a day on which the Stock Exchange is open for the transaction of
business
“close associate”
the same meaning ascribed to it under the Listing Rules
“Companies Act”
the Companies Act 1981 of Bermuda (as amended)
“Completion”
Completion of the Share Purchase Agreement
“Companies Law”
the Companies Law (Revised) of the Cayman Islands
“Company”
Greenheart Group Limited (Stock Code: 94), a company
incorporated in Bermuda with limited liability, the Shares of
which are listed on the Main Board of the Stock Exchange
“Composite Document”
the composite offer and response document to be issued jointly by
Newforest and the Company in relation to the Offers proposed to
be sent to Shareholders, the holders of Options and the holder of
the Convertible Notes containing, inter alia, details of the Offers
“connected person”
the same meaning ascribed to it under the Listing Rules
“connected transaction”
the same meaning ascribed to it under the Listing Rules
“Convertible Notes”
the US dollar denominated convertible notes due 17 August 2015
with an original aggregate principal amount of US$25,000,000
issued by the Company and convertible into 97,077,922 Shares.
As disclosed in the Company’s announcement dated 20 February
2013, the Company has redeemed US$8,000,000 of the principal
amount of the convertible notes and as a result, the outstanding
principal amount of the convertible notes was reduced to
US$17,000,000 which is convertible into 66,012,987 Shares
according to a conversion price of HK$2.002 per Share and fixed
exchange rate of US$1.00 to HK$7.774
1
DEFINITIONS
“Convertible Notes Offer”
the possible mandatory unconditional cash offer for all the
Convertible Notes (other than those already owned or agreed to be
acquired by Newforest and parties acting in concert with it) to be
made by VMS Securities for and on behalf of Newforest
“Debt Interests”
the Sino-Capital Loans and the EPGL Loan
“Deposit Agent”
means a deposit agent which may be appointed by Newforest and
Sino-Capital
“Director(s)”
the director(s) of the Company from time to time
“EPGL”
Emerald Plantation Group Limited, a company incorporated in
the Cayman Islands with limited liability and a wholly-owned
subsidiary of EPHL
“EPGL Loan”
the loan with an aggregate principal amount of US$40 million
from EPGL to Mega Harvest (as the same may be amended and
supplemented from time to time)
“EPHL”
Emerald Plantation Holdings Limited, a company incorporated in
the Cayman Islands with limited liability and the ultimate holding
company of Sino-Capital
“Executive”
the Executive Director of the Corporate Finance Division of the
Securities and Futures Commission or any of his delegates
“Greenheart Resources”
Greenheart Resources Holdings Limited, a company incorporated
in the British Virgin Islands with limited liability and an indirect
non-wholly owned subsidiary of the Company
“Greenheart Resources Agreement”
the sale and purchase agreement dated 31 October 2014 between
Sino-Capital, EPGL, EPHL and Newforest in respect of (i) the
sale and purchase of approximately 39.61% of the issued shares of
Greenheart Resources; and (ii) the sale and purchase of the Debt
Interests
“Greenheart Resources Conditions”
the conditions precedent to the completion of the Greenheart
Resources Agreement
“Greenheart Resources Shares”
ordinary shares with no par value in the capital of Greenheart
Resources to be acquired in accordance with the Greenheart
Resources Agreement (3,036,000,000 ordinary shares representing
approximately 39.61% of its issued share capital)
“Group”
the Company and its subsidiaries
2
DEFINITIONS
“GSHL”
Greater Sino Holdings Limited, a company incorporated in the
British Virgin Islands with limited liability and the holder of the
Convertible Notes
“HK$”
Hong Kong dollar(s)
“Hong Kong”
the Hong Kong Special Administrative Region of the People’s
Republic of China
“Independent Board Committee”
the independent committee of the Board comprising all the
independent non-executive Directors established to advise the
Independent Shareholders on (i) Newforest’s purchase of the
Greenheart Resources Shares from Sino-Capital and the Sale
of the Debt Interests, (ii) the Offers and (iii) the Silver Mount
Waivers
“Independent Financial Adviser” or “Somerley”
Somerley Capital Limited, a corporation licensed by the Securities
and Futures Commission to conduct Type 1 (dealing in securities)
and Type 6 (advising on corporate finance) regulated activities
under the SFO, the independent financial adviser appointed by
the Company to advise the Independent Board Committee and the
Independent Shareholders on (i) the Special Deals, (ii) the Offers
and (iii) the Silver Mount Waivers
“Independent Shareholders”
Shareholders other than (i) Sino-Capital, its associates (as defined
in the Listing Rules) and parties acting in concert with it and
(ii) Newforest, its associates (as defined in the Listing Rules),
and parties acting in concert with any of them and those who are
involved in or interested in the Greenheart Resources Agreement
and the transaction contemplated thereunder
“Interested Directors”
Mr. Wang Tong Sai, Eddie, Mr. Paul Jeremy Brough, Mr. Colin
Denis Keogh and Mr. Simon Murray
“Joint Announcement”
the joint announcement issued by Newforest and the Company
dated 11 December 2014 in relation to, among other things, the
Share Purchase Agreement, the Greenheart Resources Agreement,
the Silver Mount Waivers and the Offers
“Last Trading Day”
31 October 2014, being the last day on which the Shares were
traded prior to suspension of trading of the Shares pending issue
of the Joint Announcement
“Latest Practicable Date
21 January 2015, being the latest practicable date prior to the
printing of this circular for ascertaining certain information
contained in this circular
3
DEFINITIONS
“LIBOR”
in respect of each interest period of the EPGL Loan, it means (a)
the applicable British Bankers’ Association Interest Settlement
Rate for US$ and the relevant period displayed on the appropriate
page of Reuters or, if such page or service is replaced or ceases to
be available, such other page or service displaying the appropriate
rate after consultation with Mega Harvest; or (b) (if no British
Bankers Association Interest Settlement Rate is available for the
relevant interest period) the arithmetic mean of the rates (rounded
upwards to four decimal places) as supplied to EPGL at its request
by three international banks as the rate at which the relevant bank
could borrow funds in the London interbank market in US$ for the
relevant period, in each case as of 10:00 am on the day falling two
business days before the first day of the relevant Interest Period
for a period comparable to the interest period
“Listing Rules”
the Rules Governing the Listing of Securities on the Stock
Exchange
“Mega Harvest”
Mega Harvest International Limited, an indirect wholly-owned
subsidiary of the Company, incorporated in the British Virgin
Islands with limited liability
“Newforest”
Newforest Limited, an exempted company incorporated with
limited liability in the Cayman Islands
“Newforest Group”
Newforest and its subsidiaries (as such term is defined in the
Companies Law)
“Offers”
the Share Offer, the Option Offer and the Convertible Notes Offer
“Offer Shares”
all the Shares (other than those already owned or agreed to be
acquired by Newforest and parties acting in concert with it)
“OIA”
the Overseas Investment Act 2005 and Overseas Investment
Regulations 2005, in each case, of New Zealand
“OIO Approval”
all consents required under the OIA for the implementation of
the Share Purchase Agreement on terms acceptable to Newforest
(acting reasonably)
“Option Offer”
the possible mandatory unconditional cash offer for the
cancellation of all outstanding Options (other than those already
owned or agreed to be acquired by Newforest and parties acting in
concert with it) to be made by VMS Securities for and on behalf
of Newforest
4
DEFINITIONS
“Options”
outstanding options granted by the Company under the Share
Option Scheme
“Overseas Holders”
Shareholders, whose registered addresses as shown in the register
of members of the Company, who are outside Hong Kong, and
holders of Options and holder of Convertible Notes who are not
residents of Hong Kong
“Prime Rate”
the rate of interest per annum as announced or applied by The
Hongkong & Shanghai Banking Corporation Limited (or such
other bank as the lender may from time to time select in its
absolute discretion) from time to time as its prime interest rate in
Hong Kong for lending Hong Kong dollars to its prime customers
“Sale of the Debt Interests”
the disposal of the Debt Interests under the Greenheart Resources
Agreement
“Sale Shares”
the Shares to be acquired in accordance with the Share Purchase
Agreement (representing approximately 62.82% of the issued
share capital of the Company as at the date of the Share Purchase
Agreement)
“SFO”
the Securities and Futures Ordinance (Chapter 571 of the laws of
Hong Kong)
“SGM”
the special general meeting of the Company to be convened and
held to consider and, if thought fit, approve, among others, (i)
Newforest’s purchase of the Greenheart Resources Shares from
Sino-Capital and the Sale of the Debt Interests and (ii) the Silver
Mount Waivers
“Shareholders”
holders of the Shares
“Share Offer”
the possible mandatory unconditional cash offer for all the
Offer Shares to be made by VMS Securities for and on behalf of
Newforest
“Share Offer Price”
the price at which the Share Offer will be made, being HK$0.71
per Offer Share
“Share Option Scheme”
the share option scheme of the Company adopted on 28 June 2012
“Share Purchase Agreement”
the share purchase agreement dated 31 October 2014 between
Sino-Capital, EPGL, EPHL and Newforest in respect of the sale
and purchase of 496,189,028 Shares, representing approximately
62.82% of the issued share capital of the Company as at the date
of the agreement
5
DEFINITIONS
“Share Transfer Condition”
the condition precedent to Completion
“Shares”
ordinary shares of HK$0.01 each in the capital of the Company
“Silver Mount”
Silver Mount Group Limited, a company incorporated in the
British Virgin Islands with limited liability, and a wholly-owned
subsidiary of the Company and a shareholder of Greenheart
Resources
“Silver Mount Waivers”
Silver Mount’s confirmation in writing to the Vendor that it (i)
has waived or will not exercise its right of first refusal and (ii)
has waived or will not exercise its co-sale right, in each case,
in respect of the Greenheart Resources Shares, as referred to
in the section headed “E. Silver Mount Waivers as Connected
Transaction” in the “Letter from the Board” included in this
circular
“Sino-Capital” or “Vendor”
Sino-Capital Global Inc., a company incorporated in the British
Virgin Islands, and a wholly-owned subsidiary of EPGL with
EPHL being its ultimate holding company
“Sino-Capital Loans”
the loans from Sino-Capital to Greenheart Resources (as the same
may be amended and supplemented from time to time)
“Special Deals”
the possible acquisition of the Greenheart Resources Shares and
the Debt Interests by Newforest, which constitute special deals for
the Company under Rule 25 of the Takeovers Code
“Stock Exchange”
The Stock Exchange of Hong Kong Limited
“Takeovers Code”
the Hong Kong Code on Takeovers and Mergers
“Trading Day”
a day when the Stock Exchange is open for trading in Hong Kong
“US$”
US dollar(s), the lawful currency of the United States of America
“VMS Securities”
VMS Securities Limited, a corporation licensed to carry out Type
1 (dealing in securities), Type 4 (advising on securities), Type 6
(advising on corporate finance) and Type 9 (asset management)
regulated activities under the SFO, who has been appointed as the
financial adviser to Newforest
“%”
per cent.
US$:HK$ exchange rate used in this circular is 1:7.8.
6
LETTER FROM THE BOARD
GREENHEART GROUP LIMITED
綠森集團有限公司*
(Incorporated in Bermuda with limited liability)
(Stock Code: 94)
Executive Directors:
Registered Office:
Mr. Paul Jeremy Brough (Interim Chief Executive Officer)
Canon’s Court
Mr. Hui Tung Wah, Samuel
22 Victoria Street
Hamilton HM 12
Non-executive Directors:Bermuda
Mr. Wang Tong Sai, Eddie
Mr. Colin Denis Keogh
Head Office and principal place
Mr. Simon Murray
of business in Hong Kong:
16/F., Dah Sing Financial Centre
Independent Non-executive Directors:
108 Gloucester Road
Mr. Wong Kin Chi
Wanchai
Mr. Wong Che Keung, Richard
Hong Kong
Mr. Tong Yee Yung, Joseph
23 January 2015
To the Shareholders, and for information only, the holders of Options and Convertible Notes
Dear Sir or Madam,
(1) POSSIBLE ACQUISITION OF SHARES IN GREENHEART RESOURCES
HOLDINGS LIMITED AND DEBT INTERESTS UNDER THE GREENHEART
RESOURCES AGREEMENT BY NEWFOREST LIMITED AS SPECIAL DEALS;
(2) WAIVERS BY SILVER MOUNT GROUP LIMITED AS CONNECTED
TRANSACTION
AND
(3) NOTICE OF SPECIAL GENERAL MEETING
A.INTRODUCTION
Reference is made to the Joint Announcement in relation to, among other things, the Share
Purchase Agreement, the Greenheart Resources Agreement, the Silver Mount Waivers and the Offers.
The Special Deals and the Silver Mount Waivers will be put forward for the Independent Shareholders’
approval at the SGM.
* for identification purpose only
7
LETTER FROM THE BOARD
The purpose of this circular is to provide you with, inter alia, (i) further information about the
Share Purchase Agreement, the Greenheart Resources Agreement, the Silver Mount Waivers and the
respective transactions contemplated thereunder; (ii) financial information of the Group; (iii) a letter of
recommendation from the Independent Board Committee and a letter of advice from the Independent
Financial Adviser in respect of the Special Deals and the Silver Mount Waivers; and (iv) a notice of the
SGM.
B.
THE SHARE PURCHASE AGREEMENT
Date:
31 October 2014
Parties:
Vendor:
Sino-Capital, a direct wholly-owned subsidiary of EPGL and the
legal and beneficial owner of 496,189,028 Shares immediately
before Completion, representing approximately 62.82% of the
issued share capital of the Company as at the Latest Practicable
Date.
Purchaser:
Newforest. For further information, please refer to the sub-section
headed “Information about Newforest” in the section headed “E.
Silver Mount Waivers as Connected Transaction” below.
The Sale Shares
Pursuant to the Share Purchase Agreement, Sino-Capital as vendor has conditionally
agreed to sell and Newforest as purchaser has conditionally agreed to purchase the Sale Shares,
comprising an aggregate of 496,189,028 Shares, representing approximately 62.82% of the issued
share capital of the Company as at the Latest Practicable Date. EPGL, as the holding company of
Sino-Capital, is a party to the Share Purchase Agreement giving warranties in respect of the Sale
Shares and EPHL, as the ultimate holding company of Sino-Capital, is a party to the Share Purchase
Agreement covenanting to various obligations in its capacity as a parent company. In accordance
with the Share Purchase Agreement, the Sale Shares will be acquired by Newforest free from any
encumbrance and together with all rights attached and accrued to them at the date of Completion
including all rights to any dividend or other distribution declared, made or paid on or after the date
of Completion. Immediately after Completion, Sino-Capital will no longer hold any Shares.
Consideration
The consideration for the Sale Shares is US$45,000,000 (equivalent to approximately
HK$351,000,000), which has been agreed between Sino-Capital and Newforest after arm’s length
negotiation on normal commercial terms.
The consideration for the Sale Shares shall be settled in the following manner:
(a)
after the date of the Share Purchase Agreement, Newforest may appoint a Deposit
Agent and pay US$10,000,000 (equivalent to approximately HK$78,000,000) to the
Deposit Agent as deposit; and
8
LETTER FROM THE BOARD
(b)
on the date of Completion:
(i)
the Deposit Agent to pay the deposit to Sino-Capital (if a Deposit Agent is
appointed and the deposit is paid); and
(ii)
Newforest to pay US$35,000,000 (approximately HK$273,000,000), being
the balance of the consideration for the Sale Shares (or US$45,000,000 if no
deposit is made with a Deposit Agent), to Sino-Capital.
The Share Transfer Condition and Completion
Completion is conditional on, and shall take place immediately following, satisfaction
of the Share Transfer Condition, being the completion of the Greenheart Resources Agreement
having occurred in accordance with its terms. The Share Transfer Condition may be waived by
the Vendor and Newforest if they agree to such waiver in writing. The Share Purchase Agreement
shall automatically terminate if the Share Transfer Condition is not satisfied on or prior to 31
March 2015, but will be automatically extended for up to three additional periods of 30 days each
if certain requirements are met. Please refer to the sub-section headed “Greenheart Resources
Conditions” under the section headed “C. Greenheart Resources Agreement” below for further
details.
Possible Mandatory Unconditional Cash Offers
Immediately following the Completion, Newforest and parties acting in concert with it will
be interested in an aggregate of 496,189,028 Shares, representing approximately 62.82% of the
issued share capital of the Company as at the Latest Practicable Date. Newforest will be required
to make a mandatory unconditional cash offer for (i) all the issued Shares, and (ii) cancellation of
all outstanding Options and acquisition of all Convertible Notes (other than those already owned
or agreed to be acquired by Newforest and parties acting in concert with it) pursuant to Rules
26.1 and 13.1 of the Takeovers Code, respectively, upon Completion. It was stated in the Joint
Announcement that upon Completion, the Offers will be made by VMS Securities on behalf of
Newforest in accordance with the Takeovers Code to make (i) the Share Offer for all the issued
Shares (other than those already owned or agreed to be acquired by it and parties acting in concert
with it); and (ii) the Option Offer and the Convertible Note Offer for the cancellation of all the
Options and the acquisition of all the Convertible Notes (other than those already owned or
agreed to be acquired by it and parties acting in concert with it), on the terms to be set out in the
Composite Document to be issued in accordance with the Takeovers Code. Details of the Offers are
set out in Appendix I to this circular.
Pursuant to Rule 8.2 of the Takeovers Code, the Composite Document (together with
relevant form(s) of acceptance) should be posted to the Shareholders, the holders of the Options
and holder of the Convertible Notes within 21 days of the date of the Joint Announcement. In light
of the expected time required for obtaining certain approvals for Completion and the time period
contemplated by Rule 8.2 of the Takeovers Code, an application has been made to the SFC pursuant
to Rule 8.2 of the Takeovers Code for its consent and the consent has been granted by the Executive
9
LETTER FROM THE BOARD
on 23 December 2014 to extend the latest time for the despatch of the Composite Document
(together with relevant form(s) of acceptance) to within 7 days from the date of Completion or
7 July 2015, whichever is earlier.
Shareholding Structure of the Company
The table below sets out the shareholding structure of the Company as at the date of this
circular:
Name of Shareholder
Shareholding as at the date of
this circular
Number of Approximate
issued Shares
%
Sino-Capital (Note 3)
Hui Tung Wah, Samuel *
Simon Murray *
Wong Kin Chi *
Public Shareholders
496,189,02862.82
1,505,000
0.19
1,246,000
0.16
150,000
0.02
290,799,076
36.82
Total
789,889,104100.00
Notes:
1.
Due to rounding up of the percentages, the accumulated percentage is slightly different from 100%.
2.
* denotes a director of the Company. Excludes any Options held by the directors under the Share Option
Scheme.
3.
Sino-Capital is a wholly-owned subsidiary of EPGL, and EPGL is a wholly-owned subsidiary of EPHL.
As such, EPHL and EPGL are deemed to be interested in the Shares in which Sino-Capital is interested by
virtue of Part XV of the SFO.
Save as disclosed above, the Company has no other substantial shareholders based on
publicly available substantial shareholder filings in respect of the Company under Part XV of the
SFO.
GSHL holds the Convertible Notes, being the US dollar denominated convertible notes
with an aggregate principal amount of US$17,000,000 due 17 August 2015 issued by the
Company which are convertible into 66,012,987 Shares (representing approximately 8.36% of the
issued Shares as at the Latest Practicable Date). As at the Latest Practicable Date, there are also
17,488,145 outstanding Options under the Share Option Scheme.
10
LETTER FROM THE BOARD
C.
GREENHEART RESOURCES AGREEMENT
The Greenheart Resources Agreement
Date:
31 October 2014
Vendor:
Sino-Capital, as the sole legal and beneficial owner of the
Greenheart Resources Shares;
Sino-Capital and EPGL, as the legal and beneficial owners of the
Debt Interests
Purchaser:Newforest
The Sale of Greenheart Resources Shares and the Debt Interests
Pursuant to the Greenheart Resources Agreement:
(a)
Sino-Capital conditionally agreed to sell, and Newforest conditionally agreed to
purchase, the Greenheart Resources Shares, being 3,036,000,000 ordinary shares of
Greenheart Resources (representing approximately 39.61% of its issued share capital
as at the Latest Practicable Date); and
(b)
Sino-Capital and EPGL conditionally agreed to sell, and Newforest conditionally
agreed to purchase, all the benefits and obligations of the Debt Interests,
in accordance with its terms.
EPGL, as the holding company of Sino-Capital, is a party to the Greenheart Resources
Agreement giving warranties in respect of the Greenheart Resources Shares, and EPHL, as the
ultimate holding company of Sino-Capital, is a party to the Greenheart Resources Agreement
covenanting to various obligations in its capacity as a parent company. According to the Greenheart
Resources Agreement, the Greenheart Resources Shares will be acquired by Newforest free
from any encumbrance and together with all rights attached and accrued to them at the date of
completion including all rights to any dividend or other distribution declared (if any), made or paid
on or after the date of completion. Immediately after completion under the Greenheart Resources
Agreement, Sino-Capital will no longer hold any shares in Greenheart Resources.
Consideration and Guarantee
The consideration under the Greenheart Resources Agreement is a sum of (i) US$63,466,960
(equivalent to approximately HK$495,042,288); (ii) the principal amount of any additional SinoCapital Loan borrowed by Greenheart Resources from Sino-Capital after the Latest Practicable
Date and up to and including the date of completion of the Greenheart Resources Agreement to
finance its operations (which may be up to US$1,033,040 pursuant to the Greenheart Resources
11
LETTER FROM THE BOARD
Agreement); and (iii) any accrued but unpaid interest of the Debt Interests as of the date of
completion of the Greenheart Resources Agreement, which has been agreed among Sino-Capital,
EPGL, EPHL and Newforest after arm’s length negotiation on normal commercial terms. In
particular, US$10,000,000 (equivalent to approximately HK$78,000,000) of the consideration
is attributed to the Greenheart Resources Shares, US$40,000,000 (equivalent to approximately
HK$312,000,000) of the consideration is attributed to the principal amount of the EPGL Loan, and
approximately US$13,466,960 (equivalent to approximately HK$105,042,288) of the consideration
is attributed to the principal amount of the Sino-Capital Loans as at the Latest Practicable Date. As
at the Latest Practicable Date, the aggregate amount of accrued but unpaid interest of the EPGL
Loan and the Sino-Capital Loans was approximately US$613,875 (equivalent to approximately
HK$4,788,225). The consideration for the Greenheart Resources Shares to be paid at completion is
calculated based on the book value and prospects of future profits of Greenheart Resources.
Under the terms of the Greenheart Resources Agreement, the payment of an amount equal
to 24.99% of the sum of the consideration under (i) the Share Purchase Agreement and (ii)
the Greenheart Resources Agreement (the “Delayed Payment”) is deferred, and is payable by
Newforest to EPGL on the date falling on the first year anniversary of the date of the Greenheart
Resources Agreement. Newforest’s obligation to pay the Delayed Payment under the Greenheart
Resources Agreement is unconditionally and irrevocably guaranteed by Sharpfield Holdings
Limited pursuant to a deed of guarantee entered into between EPGL and Sharpfield Holdings
Limited on the date of the Greenheart Resources Agreement. Sharpfield Holdings Limited is
directly, wholly, legally and beneficially owned by Chow Tai Fook Enterprises Limited.
The Greenheart Resources Conditions
The Greenheart Resources Agreement is conditional upon:
(a)
the Vendor’s warranties under the Greenheart Resources Agreement and the Share
Purchase Agreement qualified as to materiality being true and correct, and those not
so qualified being true and correct in all material respects, in each case, as of the date
of the Greenheart Resources Agreement and the date of completion of the Greenheart
Resources Agreement, except to the extent such warranties expressly speak as of an
earlier date (in which case such warranties qualified as to materiality being true and
correct, and those not qualified being true and correct in all material respects, on and
as of such earlier date), provided any failure of the warranties to be so true and correct
does not cause a material adverse effect on the Group;
(b)
there shall not have been or occurred any event, change, occurrence or circumstance
that, individually or when aggregated with any other such events, changes,
occurrences or circumstances, has had or could reasonably be expected to have a
material adverse effect on the Group since the date of the Greenheart Resources
Agreement, provided that any material adverse effect on the Group attributable to the
exercise of any redemption right in respect of the Convertible Notes by the noteholder
thereof shall be excepted;
12
LETTER FROM THE BOARD
(c)
Newforest’s warranties under the Greenheart Resources Agreement and the Share
Purchase Agreement qualified as to materiality being true and correct, and those not
so qualified being true and correct in all material respects, in each case, as of the date
of the Greenheart Resources Agreement and the date of completion of the Greenheart
Resources Agreement, except to the extent such warranties expressly speak as of an
earlier date (in which case such warranties qualified as to materiality being true and
correct, and those not qualified being true and correct in all material respects, on
and as of such earlier date), provided any failure of the warranties to be so true and
correct does not have a material adverse effect on the ability of Newforest to complete
the transactions under the Greenheart Resources Agreement or the Share Purchase
Agreement;
(d)
Silver Mount Waivers having been given by Silver Mount and approved by the
Independent Shareholders at the SGM;
(e)
a copy of the duly executed, undated deed of release having been delivered by the
Vendor in relation to security granted by EPGL and Sino-Capital in connection with
certain of EPHL’s guaranteed debt;
(f)
receipt by Newforest of the OIO Approval in respect of the transactions contemplated
under the Share Purchase Agreement;
(g)
receipt by Newforest of a copy of the duly executed waiver of the right of review
under a certain loan facility agreement between the Bank of New Zealand and
Greenheart MFV Limited (an indirect wholly-owned subsidiary of the Company)
relating to a term loan facility for an aggregate principal amount of US$25,000,000
and a variable overdraft facility, in respect of, or pre-emptive consent to, the
implementation of the transactions under the Greenheart Resources Agreement and the
Share Purchase Agreement; and
(h)
approval by the applicable shareholders of the Company and the Executive for the
implementation of the transactions contemplated under the Greenheart Resources
Agreement and the transactions contemplated under the Share Purchase Agreement to
the extent required pursuant to the Takeovers Code and the Listing Rules.
The Vendor may at any time before the time and date specified in the Greenheart Resources
Agreement waive (whether in whole or in part), in accordance with the terms therein, the above
Greenheart Resources Condition specified in paragraph (c) and Newforest may at any time before
the time and date specified in the Greenheart Resources Agreement waive (whether in whole or in
part), in accordance with the terms therein, the above Greenheart Resources Conditions specified
in paragraphs (a), (b) and (g). The above Greenheart Resources Conditions specified in paragraphs
(d) to (f) (both inclusive) and (h) may be waived by the Vendor and Newforest if they agree to
such waiver in writing. Sino-Capital has advised the Company that it will not waive the Greenheart
Resources Condition specified in paragraph (h). The Greenheart Resources Agreement shall
automatically terminate in accordance with its terms if the Greenheart Resources Conditions are
not satisfied on or prior to 31 March 2015, which shall be automatically extended for up to three
additional periods of 30 days each if all of the Greenheart Resources Conditions are satisfied or
capable of being satisfied and Newforest is still seeking the OIO Approval.
13
LETTER FROM THE BOARD
Completion of the Greenheart Resources Agreement
The Greenheart Resources Agreement following its becoming unconditional will be
completed simultaneously with the Share Purchase Agreement.
Newforest wishes to note to the Shareholders, holders of the Options and holder of the
Convertible Notes, that it would typically take 12-16 weeks (approximately 100 working days) to
obtain the OIO Approval, if granted, in satisfaction of the Greenheart Resources Condition as stated
in paragraph (f) above. As a consequence, the Greenheart Resources Agreement and accordingly,
the Share Purchase Agreement may not be completed, and the Offers as more particularly set out
in Appendix I to this circular cannot commence, until such consent has been obtained, which is
currently expected to be in early 2015.
Information about Greenheart Resources
Greenheart Resources and its subsidiaries primarily engage in forestry operations in
Suriname. As at the Latest Practicable Date, the total number of ordinary shares in the capital of
Greenheart Resources is 7,665,000,000, out of which 4,629,000,000 ordinary shares in the capital
of Greenheart Resources (representing approximately 60.39% of Greenheart Resources’ issued
share capital) are held by Silver Mount and the Greenheart Resources Shares (3,036,000,000
ordinary shares in the capital of Greenheart Resources, representing approximately 39.61% of
Greenheart Resources’ issued capital) are held by Sino-Capital. Those Greenheart Resources Shares
are one of the subject matters of the Greenheart Resources Agreement.
Greenheart Resources and its subsidiaries hold forest concessions of approximately 185,000
hectares for the exploitation of tropical hardwood with an operational hardwood processing facility
in the western part of Suriname (collectively “West Suriname”).
Suriname is the smallest country in South America and situated between French Guiana
to the east and Guyana to the west. The southern border is shared with Brazil and the northern
border is on the Atlantic coast. The estimated forest area of Suriname is approximately 14.8 million
hectares, which is over 94% of the total land area. The Group is the largest forest operator in
Suriname.
Greenheart Resource’s West Suriname processing mill is located near its forest concessions
and covers an area of 20 hectares. It currently owns and operates a sawmill with three lines with
a total log input capacity per annum (double shift) of approximately 60,000 m3. The construction
of a bio-energy plant has recently been completed. The management of the Company (the
“Management”) expects the benefits of lower energy costs, especially from the reduction of fossil
fuel consumption, will accrue in 2015. Management is focusing on efforts to improve operational
efficiency by, inter alia, enhancing the plant layout, streamlining material flows and handling etc.
and expect that the final stage of the production capacity enhancement program will be completed
by the first half of 2015. By then, the log input volume will increase to up to 100,000 m3 (double
shift) per annum.
14
LETTER FROM THE BOARD
West Suriname currently harvests over 30 different species of commercial hardwood. Given
11 additional new kilns have now been in operation since the last quarter of 2014, West Suriname
is better positioned to improve its product mix by increasing the proportion of high value added
lumber products, resulting in higher profit margins.
Continued cost reduction is vital to the turnaround of the West Suriname sawmill operation.
Management will continue to take further measures to reduce operating costs while maintaining
controls and improving operational efficiency and sales order fulfillment.
In 2012 the West Suriname operation obtained Forest Stewardship Council (“FSC”)
controlled wood certification. It has just completed a full FSC assessment following which it is
expected that West Suriname will advance to full FSC certificate accreditation in early 2015. Such
advanced accreditation will facilitate premium pricing and increased penetration into USA and, in
particular, European markets which increasingly require FSC products.
The significant increase in the forest concession levy in Suriname, introduced in early
2014, was met with resistance from the Suriname forestry industry. In response, the Suriname
government appointed advisors with timber industry experience to work with industry participants
and to report and advise on an appropriate level of concession levy. At as the Latest Practicable
Date, negotiations between the industry and the Suriname government are continuing. The Group
will continue to work with other industry participants and the advisors to the Suriname government
in order to reach a more reasonable solution which is equitable to all parties. Up to the Latest
Practicable Date, West Suriname has accrued but not paid the increased concession levy, amounting
to HK$10,130,905.
Set out below are the audited/unaudited financial position of Greenheart Resources and its
subsidiaries (“Greenheart Resources Group”) as at 31 December 2012, 31 December 2013 and
30 June 2014:
As at
As at
31 December
31 December
As at 30 June
201220132014
HK$’000HK$’000HK$’000
(audited) (audited)(unaudited)
Net liabilities
(149,846)(246,901)(301,476)
As at 30 June 2014, Greenheart Resources Group had an unaudited deficit of net assets
of approximately HK$301.5 million. After taking into account the adjustments of the carrying
fair value of the assets acquired and liabilities assumed upon acquisition of the Greenheart
Resources Group in 2007 made on the consolidated financial statements of the Group, Greenheart
Resources Group would have an adjusted consolidated net asset value of HK$340 million (or
US$43.59 million), of which HK$134.67 million (or US$17.27 million) would be attributable to
the Greenheart Resources Shares representing approximately 39.61% of the issued share capital of
Greenheart Resources as at 30 June 2014.
15
LETTER FROM THE BOARD
Details of the fair value adjustment as mentioned above are as follows:
HK$’million
Net liabilities as at 30 June 2014 (unaudited)
(301.5)
Fair value adjustment in relation to recognition
of identifiable intangible asset of timber
concessions and cutting rights at fair value
at acquisition date, net of deferred tax (Note 1)667.5
Respective amortization on timber concessions
and cutting rights from 2007 to 30 June 2014
recorded in accordance with the Group’s accounting policy (Note 2)(26)
Adjusted net assets as at 30 June 2014 (unaudited)
340
Notes:
1.
Being the adjustment of the fair value of the identifiable intangible asset of timber concessions and cutting
rights as at acquisition date of HK$741,672,000 net of the respective deferred tax of HK$74,167,000 arising
from such adjustment. Details are disclosed in note 30 to the Group’s 2009 annual report.
2.
Respective amortization on timber concessions and cutting rights from 2007 to 30 June 2014 are recorded
in accordance with the Group’s accounting policy regarding the timber concessions and cutting rights,
whereby amortization is charged on a unit-of-production basis and the annual amortization amount is
determined based on the actual logging volume for that year to the projected total standing log volume of
the timber concessions and cutting rights.
The Greenheart Resources Group has been making losses in the past because it is still in
development stage and its potential is yet to be actualized. The Board understands that the past
financial performance of the Greenheart Resources Group was not an important factor taken
into account by the Vendor and Newforest in determining the consideration for the Greenheart
Resources Shares. Nevertheless, the Company sets out below the audited financial results of
the Greenheart Resources Group for the two years ended 31 December 2013 to provide further
information to the Shareholders:
For the year
For the year
ended 31
ended 31
DecemberDecember
20122013
HK$’000HK$’000
(audited)(audited)
Revenue
Loss before tax
Loss after tax
35,58441,332
(74,420)
(97,055)
(74,420)
(97,055)
16
LETTER FROM THE BOARD
Information about Sino-Capital Loans
Sino-Capital has extended loans to Greenheart Resources to finance its operations. The
loans owed by Greenheart Resources to Sino-Capital (of an aggregate outstanding principal amount
of US$13,466,960 as at the Latest Practicable Date), i.e. the Sino-Capital Loans, are one of the
subject matters of the Greenheart Resources Agreement. As at the Latest Practicable Date, the basic
information on such loans is set out below:
Outstanding
Lender
principal amount
Repayment date
Interest rate
Sino-Capital
US$8,000,000
26 March 2015
Prime Rate (i.e. 5%)
Sino-Capital
US$3,500,000
28 June 2016
Prime Rate (i.e. 5%)
Sino-Capital
US$1,966,960*
19 June 2017
Prime Rate (i.e. 5%)
*
After the Latest Practicable Date, Sino-Capital and Greenheart Resources may amend the principal amount
of this loan facility up to an amount not exceeding US$3,000,000. If they do so and Greenheart Resources
further utilises this loan facility, the principal amount outstanding under this facility may be increased.
In addition, Silver Mount has extended loans to Greenheart Resources to finance its
operations. As at the Latest Practicable Date, the basic information on such loans is set out below:
Outstanding
Lender
principal amount
Repayment date
Interest rate
Silver Mount
HK$215,000,000
22 November 2016
Prime Rate (i.e. 5%)
Silver Mount
US$12,196,920
26 March 2015
Prime Rate (i.e. 5%)
Silver Mount
US$5,336,153
28 June 2016
Prime Rate (i.e. 5%)
Silver Mount
US$2,998,857*
19 June 2017
Prime Rate (i.e. 5%)
*
After the Latest Practicable Date, Silver Mount and Greenheart Resources may amend the principal amount
of this loan facility upwards. If they do so and Greenheart Resources further utilises this loan facility, the
principal amount outstanding under this facility may be increased.
Information about EPGL Loan
Mega Harvest and its subsidiaries primarily engage in forestry operations in New Zealand.
EPGL has extended a loan of US$40 million (i.e. the EPGL Loan) to Mega Harvest to finance its
operations. The EPGL Loan is repayable on 17 May 2015. The interest applicable to the EPGL
Loan accrues at the rate of LIBOR plus 3.5% per annum. The EPGL Loan is one of the subject
matters of the Greenheart Resources Agreement.
17
LETTER FROM THE BOARD
D.
SPECIAL DEALS IN RELATION TO GREENHEART RESOURCES AGREEMENT
Newforest’s purchase of the Greenheart Resources Shares from Sino-Capital and the Sale of the
Debt Interests constitute special deals on the part of the Company under Rule 25 of the Takeovers Code
requiring (i) the Independent Shareholders to approve the Special Deals at the SGM by way of poll; (ii)
the Executive to consent to the Special Deals; and (iii) the Independent Financial Adviser to publicly state
that in its opinion the terms of the Special Deals are fair and reasonable.
The Company has appointed Somerley as the independent financial adviser to advise the
Independent Board Committee and the Independent Shareholders in connection with the Special Deals.
The advice of the Independent Financial Adviser on the Special Deals is set out in the “Letter from
Somerley” on pages 26 to 57 of this circular.
The Independent Board Committee (comprising only the independent non-executive Directors),
after considering the advice of the Independent Financial Adviser on the Special Deals and after taking
into account the factors brought to their attention by the Independent Financial Adviser, set out its
recommendations in the “Letter from the Independent Board Committee” on pages 24 to 25 of this
circular.
E.
SILVER MOUNT WAIVERS AS CONNECTED TRANSACTION
The transfer of Greenheart Resources Shares by Sino-Capital to Newforest pursuant to the
Greenheart Resources Agreement is subject to Silver Mount’s right of first refusal whereby Silver Mount
has the right to acquire such Greenheart Resources Shares at the same price as that in the Greenheart
Resources Agreement. Further, Silver Mount has the co-sale right to require Sino-Capital to cause
Newforest to purchase the shares of Greenheart Resources it holds and the interests in its loans to
Greenheart Resources. However, Silver Mount has decided to conditionally waive these two rights by not
exercising either the aforesaid right of first refusal or the co-sale right (i.e. the Silver Mount Waivers).
Sino-Capital has informed the Company that it intends to comply with its obligations to Silver
Mount in respect of Silver Mount's right of first refusal and co-sale right, in each case, in respect of the
Greenheart Resources Shares, as referred to in this section.
Listing Rules implications
Sino-Capital is a controlling shareholder (as defined in the Listing Rules) of the Company
and is therefore a connected person of the Company. The Silver Mount Waivers in respect of SinoCapital’s proposed sale of Greenheart Resources Shares under the Greenheart Resources Agreement
constitutes a connected transaction of the Company under Rules 14A.24(2)(b) and 14A.79 of the
Listing Rules. Based on the applicable ratios, the de minimis exemption under Chapter 14A of the
Listing Rules does not apply. The Silver Mount Waivers are subject to approval by the Independent
Shareholders at the SGM by way of poll.
The Company has appointed Somerley as the Independent Financial Adviser to advise the
Independent Board Committee and the Independent Shareholders in connection with the Silver
Mount Waivers. The advice of the Independent Financial Adviser on the Silver Mount Waivers is
set out in the “Letter from Somerley” on pages 26 to 57 of this circular.
18
LETTER FROM THE BOARD
Given the material interests of the Interested Directors in the Silver Mount Waivers, the
Interested Directors were required to abstain and had abstained from voting at the Board meeting
approving the Silver Mount Waivers.
Factors for the Silver Mount Waivers
The independent non-executive Directors, together with the Director who may participate
in the Board discussions on the Silver Mount Waivers, have considered the following factors and
considerations in respect of whether the Silver Mount Waivers should be given:
•
Whether it is beneficial to the Group and its Shareholders to retain the Group’s
investment in the Greenheart Resources business in view of its growth potential and
the capital investments already made and substantially completed over the past few
years. The Greenheart Resource business is centered on its sawmill and forestry
operations in West Suriname. These operations, combined with the Group’s whollyowned Central Suriname operations, are an important element of the Group’s strategic
plans to develop strong customer bases for Forest Stewardship Council (FSC)accredited products sold mainly to customers in Europe and China. The Group’s
business in Central Suriname was acquired in February 2014.
•
The need for the Group to maintain a diversified income stream to withstand changes
in demand. Its two major streams are presently derived from its New Zealand
softwood logging business, which is in general more exposed to short-term changes in
supply and demand, and its Suriname hardwood logging and lumber business.
•
If the co-sale right is exercised, the Company would cease to have a majority
shareholding in Greenheart Resources which would mean the Company would no
longer control Greenheart Resources or the West Suriname business. As a result, the
financial results of Greenheart Resources would no longer be consolidated in the
accounts of the Company. This loss of control would mean, among other things, that
the Company would no longer have the ability to control the making of distributions
or the issue of further shares by Greenheart Resources. This loss of control may also
disrupt the stability of the Group’s Suriname management team, whose expertise
and experience in managing operations in emerging markets and their connections
in the industry are important to the success of the Group’s Suriname business. The
consequences of loss of control may impact the Group’s ability to invest and expand
the Suriname business as a whole which is integral to the Group’s overall business.
•
The Group’s current financial position, the need to complete capital expenditure
programs in Suriname, expansion plans for New Zealand and retention of its internal
financial resources to meet the Group’s liabilities. If the right of first refusal is
exercised, the Company will have to utilize up to US$10,000,000, which represents a
significant portion of the Group’s present cash resources, to pay the consideration for
the Greenheart Resources Shares held by Sino-Capital.
19
LETTER FROM THE BOARD
•
Whether Newforest will be a supportive partner in Greenheart Resources and the
Suriname business.
•
Whether the performance of Greenheart Resources will improve in future as
investment comes to an end, capital expenditure diminishes and the operations grow
and become more efficient, which will eventually improve the overall profitability of
the Group.
The Independent Board Committee (comprising only the independent non-executive
Directors), after considering the advice of the Independent Financial Adviser on the Silver Mount
Waivers and after taking into account the above factors as well as other factors brought to their
attention by the Independent Financial Adviser, has set out its recommendations in the “Letter from
the Independent Board Committee” on pages 24 to 25 of this circular.
Information about the Company
The Company is a company incorporated in Bermuda with limited liability and its Shares
are listed on the Main Board of the Stock Exchange. The principal activity of the Company is
investment holding, and the principal activities of the subsidiaries of the Company comprise log
harvesting, lumber processing, marketing and sales of logs and lumber products, as disclosed in the
latest 2013 annual report and 2014 interim report of the Company.
Information about Silver Mount
Silver Mount is a company incorporated in the British Virgin Islands, and a wholly-owned
subsidiary of the Company and a shareholder of Greenheart Resources. The principal activity of
Silver Mount is investment holding.
Information about Sino-Capital
Sino-Capital a company incorporated in the British Virgin Islands, and a wholly-owned
subsidiary of EPGL with EPHL being its ultimate holding company. The principal activity of SinoCapital is investment holding.
Information about Newforest
Newforest is a company incorporated in the Cayman Islands and is directly and beneficially
owned by Gateway Asia Resources Limited (a direct wholly-owned company of Wu Wai
Leung, Danny) and Sharpfield Holdings Limited (a direct wholly-owned company of Chow Tai
Fook Enterprises Limited). Save for the entering into of the Share Purchase Agreement and the
Greenheart Resources Agreement, Newforest has not traded and/or engaged in any business activity
since its incorporation.
20
LETTER FROM THE BOARD
Financial information of the Group
The following table is a summary of certain audited financial information of the Group for
the two financial years ended 31 December 2013. More financial information of the Group is set
out in Appendix II to this circular.
Year ended
Year ended
31 December
31 December
20122013
HK’000HK’000
(audited)(audited)
Revenue
Gross profit
Profit (loss) before tax
Profit (loss) for the year
495,226724,583
186,416
335,471
(130,720)
(13,925)
(144,377)
(60,297)
As at
As at
31 December
31 December
20122013
HK’000HK’000
(audited)(audited)
Net assets
1,192,897
1,140,194
F.GENERAL
SGM
The SGM will be held for the purpose of considering and, if thought fit, approving the
resolutions in respect of (i) the Special Deals and (ii) the Silver Mount Waivers, by way of poll at
the SGM. Sino-Capital, Newforest, their respective associates, parties acting in concert with any of
them and those who are involved in or interested in the Special Deals will abstain from voting on
the resolutions at the SGM.
As at the Latest Practicable Date, Sino-Capital held an aggregate of 496,189,028 Shares,
representing approximately 62.82% of the existing issued Shares. Save for Sino-Capital’s interest in
the Shares, none of Sino-Capital’s associates held any Shares as at the Latest Practicable Date.
As disclosed in the Joint Announcement, Mr. Simon Murray, an Interested Director, has an
interest in Newforest’s purchase of the Greenheart Resources Shares from Sino-Capital and the
Sale of the Debt Interests, and will abstain from voting on the resolutions at the SGM. As at the
Latest Practicable Date, Mr. Simon Murray held an aggregate of 1,246,000 Shares, representing
approximately 0.158% of the existing issued Shares.
21
LETTER FROM THE BOARD
Save for the interest in the Sale Shares to be acquired under the Share Purchase Agreement,
no member of the Newforest Group, its associates and parties acting in concert with any of them
held any Shares as at the Latest Practicable Date.
A notice convening the SGM is set out on pages 71 to 72 of this circular. A form of proxy
for use at the SGM is enclosed herein. Whether or not you intend to attend the SGM (or any
adjournment thereof), you are requested to complete the form of proxy in accordance with the
instructions printed thereon and return it to the Company’s branch share registrar in Hong Kong,
Tricor Tengis Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, not
less than 48 hours before the time appointed for holding of the SGM (or any adjournment thereof).
Completion and return of the form of proxy will not preclude you from attending and voting at the
SGM (or any adjournment thereof) should you so wish and in such event, the form of proxy shall be
deemed to be revoked.
Independent Board Committee
The Independent Board Committee comprising all the independent non-executive Directors
has been formed in order to make recommendations to the Independent Shareholders regarding (i)
the Special Deals and (ii) the Silver Mount Waivers.
Somerley has been appointed as the Independent Financial Adviser to advise the Independent
Board Committee and the Independent Shareholders in relation to (i) the Special Deals, (ii) the
Silver Mount Waivers and (ii) the Offers. The appointment of Somerley has been approved by the
Independent Board Committee.
Recommendations
Your attention is drawn to the letter from the Independent Board Committee set out on
pages 24 to 25 of this circular which contains its recommendation to the Independent Shareholders
in respect of (i) the Special Deals and (iii) the Silver Mount Waivers, based on the advice from
the Independent Financial Adviser set out on pages 26 to 57 of this circular which contains their
recommendation to the Independent Board Committee and the Independent Shareholders and the
principal factors and reasons taken into consideration.
The Independent Board Committee, having taken into account the advice of the Independent
Financial Adviser, considers that the terms of the Special Deals and the Silver Mount Waivers
are fair and reasonable and in the interests of the Company and the Shareholders as a whole.
Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote
in favour of the resolutions to be proposed at the SGM to approve the Special Deals and the Silver
Mount Waivers and the respective transactions contemplated thereunder. The text of the letter from
the Independent Board Committee is set out on pages 24 to 25 of this circular.
22
LETTER FROM THE BOARD
G.
ADDITIONAL INFORMATION
Your attention is also drawn to the additional information set out in the appendices to this circular.
Yours faithfully,
By Order of the Board
Greenheart Group Limited
Paul Jeremy Brough
Interim Chief Executive Officer and
Executive Director
23
LETTER FROM THE INDEPENDENT BOARD COMMITTEE
Set out below is the text of the letter of recommendation from the Independent Board Committee in
respect of the Greenheart Resource Agreement and the Silver Mount Waivers.
GREENHEART GROUP LIMITED
綠森集團有限公司*
(Incorporated in Bermuda with limited liability)
(Stock Code: 94)
23 January 2015
To the Independent Shareholders
Dear Sir or Madam,
(1) POSSIBLE ACQUISITION OF SHARES IN GREENHEART RESOURCES
HOLDINGS LIMITED AND DEBT INTERESTS UNDER THE GREENHEART
RESOURCES AGREEMENT BY NEWFOREST LIMITED AS SPECIAL DEALS;
(2) WAIVERS BY SILVER MOUNT GROUP LIMITED AS CONNECTED
TRANSACTION
AND
(3) NOTICE OF SPECIAL GENERAL MEETING
We refer to the circular of the Company to the Shareholders dated 23 January 2015 (the “Circular”),
in which this letter forms part. Unless the context requires otherwise, capitalised terms used in this letter
have the same meanings given to them in the section headed “Definitions” of the Circular.
We have been appointed by the Board to consider and to advise the Independent Shareholders
as to whether (i) the terms of the Special Deals are fair and reasonable as far as the Company and the
Independent Shareholders are concerned; and (ii) the terms of the Silver Mount Waivers are on normal
commercial terms and fair and reasonable as far as the Company and the Independent Shareholders are
concern and the granting of the Silver Mount Waivers is in the ordinary and usual course of business
of the Group and in the interests of the Company and the Shareholders as a whole, and to recommend
whether or not the Independent Shareholders should approve the Special Deals and the Silver Mount
Waivers.
We wish to draw your attention to the letter of advice from Somerley, being the Independent
Financial Adviser appointed to advise the Independent Board Committee and the Independent
Shareholders on the terms of the Special Deals and the Silver Mount Waivers as set out on pages 26 to 57
of the Circular, and the letter from the Board set out on pages 7 to 23 of the Circular.
* for identification purpose only
24
LETTER FROM THE INDEPENDENT BOARD COMMITTEE
Having considered, among other matters, the factors and reasons considered by, and the opinion of
Somerley as stated in its letter of advice, we consider that (i) the terms of the Special Deals are fair and
reasonable as far as the Company and the Independent Shareholders are concerned; and (ii) the terms of
the Silver Mount Waivers are on normal commercial terms and fair and reasonable as far as the Company
and the Independent Shareholders are concern and the granting of the Silver Mount Waivers, though not
in the ordinary and usual course of business of the Group, is in the interests of the Company and the
Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of
the resolutions to be proposed at the SGM to approve the Special Deals and the Silver Mount Waivers.
Yours faithfully,
Independent Board Committee
Mr. Wong Che Keung, Mr. Tong Yee Yung,
Richard Joseph
IndependentIndependent
non-executive Director
non-executive Director
25
Mr. Wong Kin Chi
Independent
non-executive Director
LETTER FROM SOMERLEY
The following is the full text of the letter of advice from Somerley Capital Limited to the
Independent Board Committee and the Independent Shareholders which has been prepared for the
purpose of the inclusion in this circular.
SOMERLEY CAPITAL LIMITED
20th Floor
China Building
29 Queen’s Road Central
Hong Kong
To:
23 January 2015
The Independent Board Committee and the Independent Shareholders of
Greenheart Group Limited
Dear Sirs,
(1) POSSIBLE ACQUISITION OF SHARES IN
GREENHEART RESOURCES HOLDINGS LIMITED AND DEBT INTERESTS
UNDER THE GREENHEART RESOURCES AGREEMENT
BY NEWFOREST LIMITED AS SPECIAL DEALS;
AND
(2) WAIVERS BY SILVER MOUNT GROUP LIMITED
AS CONNECTED TRANSACTION
INTRODUCTION
We refer to our appointment to advise the Independent Board Committee and the Independent
Shareholders in relation to (i) Newforest’s purchase of the Greenheart Resources Shares from SinoCapital and the Sale of the Debt Interests (the “Special Deals”); and (ii) the Silver Mount Waivers,
details of which are set out in the letter from the Board contained in this circular of the Company to the
Shareholders, and for information only, the holders of the Options and the Convertible Notes dated 23
January 2015 (the “Circular”), of which this letter forms part. Unless otherwise defined, capitalised terms
used in this letter shall have the same meanings as those defined in the Circular.
On 31 October 2014 (after trading hours), Sino-Capital and Newforest, among others, entered
into the Share Purchase Agreement, pursuant to which Sino-Capital conditionally agreed to sell, and
Newforest conditionally agreed to purchase the Sale Shares, being 496,189,028 Shares, representing
approximately 62.82% of the issued share capital of the Company as at the Latest Practicable Date for a
total consideration of US$45,000,000 (equivalent to approximately HK$351,000,000 and approximately
HK$0.71 per Share). Completion is conditional upon the satisfaction of the Share Transfer Condition,
being completion of the Greenheart Resources Agreement having occurred in accordance with its terms.
The Share Transfer Condition may be waived by the Vendor and Newforest if they agree to such waiver
in writing. Details of the conditions precedent to completions of the Share Purchase Agreement and the
Greenheart Resources Agreement are set out in the letter from the Board in the Circular. Immediately
following Completion, Newforest and parties acting in concert with it will be interested in an aggregate
26
LETTER FROM SOMERLEY
of 496,189,028 Shares, representing approximately 62.82% of the issued share capital of the Company
as at the Latest Practicable Date. Newforest will, upon Completion, be required under Rules 26.1 and
13.1 of the Takeovers Code, respectively, to make (i) the Share Offer for all the issued Shares (other than
those already owned or agreed to be acquired by Newforest and parties acting in concert with it); and (ii)
the Option Offer and the Convertible Note Offer for the cancellation of all the outstanding Options and
the acquisition of all the Convertible Notes (other than those already owned or agreed to be acquired by
Newforest and parties acting in concert with it).
Furthermore, on 31 October 2014 (after trading hours), Sino-Capital, EPGL, EPHL and Newforest,
entered into the Greenheart Resources Agreement whereby (i) Sino-Capital conditionally agreed to
sell, and Newforest conditionally agreed to purchase, the Greenheart Resources Shares for an aggregate
consideration of US$10,000,000 (equivalent to approximately HK$78,000,000); and (ii) Sino-Capital and
EPGL conditionally agreed to sell, and Newforest conditionally agreed to purchase, the Debt Interests
for an aggregate consideration equivalent to the total amount outstanding (being the principal amount
plus any accrued but unpaid interest, if applicable) from the Debt Interests as of the date of completion
of the Greenheart Resources Agreement, which comprises (a) the total principal amount of approximately
US$53,466,960 (equivalent to approximately HK$417,042,288); (b) the principal amount of any additional
Sino-Capital Loan borrowed by Greenheart Resources from Sino-Capital after the Latest Practicable
Date and up to and including the date of completion of the Greenheart Resources Agreement to finance
its operations (which may be up to US$1,033,040 (equivalent to approximately HK$8,057,712) pursuant
to the Greenheart Resources Agreement); and (c) the total amount of accrued but unpaid interest as of
the date of completion of the Greenheart Resources Agreement, which was approximately US$613,875
(equivalent to approximately HK$4,788,225) as of the Latest Practicable Date. The Greenheart Resources
Agreement following its becoming unconditional will be completed simultaneously with the Share
Purchase Agreement.
Newforest’s purchase of the Greenheart Resources Shares from Sino-Capital and the Sale of the
Debt Interests constitute special deals on the part of the Company under Rule 25 of the Takeovers Code
requiring, among other things, the Independent Shareholders to approve Newforest’s purchase of the
Greenheart Resources Shares from Sino-Capital and the Sale of the Debt Interests at the SGM by way of
poll.
The transfer of the Greenheart Resources Shares by Sino-Capital to Newforest is subject to Silver
Mount’s right of first refusal whereby Silver Mount has the right to acquire such Greenheart Resources
Shares at the same price as that in the Greenheart Resources Agreement. Further, Silver Mount has the
co-sale right to require Sino-Capital to cause Newforest to purchase the shares of Greenheart Resources
it holds and the interests in its loans to Greenheart Resources. However, Silver Mount has decided to
conditionally waive these two rights by not exercising either the aforesaid right of first refusal or the
co-sale right (i.e. the Silver Mount Waivers).
Sino-Capital is a controlling shareholder (as defined in the Listing Rules) of the Company and is
therefore a connected person of the Company. The Silver Mount Waivers in respect of Sino-Capital’s
proposed sale of the Greenheart Resources Shares under the Greenheart Resources Agreement constitutes
a connected transaction of the Company under Rules 14A.24(2)(b) and 14A.79 of the Listing Rules. Based
on the applicable ratios, the de minimis exemption under Chapter 14A of the Listing Rules does not apply.
The Silver Mount Waivers are subject to approval by the Independent Shareholders at the SGM by way of
poll.
27
LETTER FROM SOMERLEY
The SGM will be held for the purpose of considering and, if thought fit, approving the resolutions
in respect of (i) the Special Deals; and (ii) the Silver Mount Waivers, by way of poll at the SGM. SinoCapital, Newforest, their respective associates, parties acting in concert with any of them and those who
are involved in or interested in the Special Deals will abstain from voting on the resolutions.
THE INDEPENDENT BOARD COMMITTEE
The Independent Board Committee comprising all the independent non-executive Directors, namely
Messrs. Wong Che Keung, Richard, Tong Yee Yung, Joseph and Wong Kin Chi, has been formed in order
to advise the Independent Shareholders on, among other things, (i) the Special Deals; and (ii) the Silver
Mount Waivers.
The Silver Mount Waivers are subject to approval by the Independent Shareholders under the
Listing Rules. Under the Listing Rules, only the independent non-executive Directors who have no interest
in the subject matter can be members of the Independent Board Committee.
In respect of the Special Deals, the Independent Board Committee shall be constituted in
accordance with the Takeovers Code. Under the Takeovers Code, the Independent Board Committee
should comprise all non-executive Directors who have no direct or indirect interest in the subject matters.
•
The three independent non-executive Directors have no interest in the Special Deals and no
interest in the Offers other than being Shareholders and/or holders of Options.
•
Mr. Wang Tong Sai, Eddie (a non-executive Director) is a director of Sino-Capital, EPGL
and EPHL. Mr. Colin Denis Keogh (a non-executive Director) is a director of EPGL and
EPHL. Due to their association with Sino-Capital and its concert parties, Mr. Wang Tong
Sai, Eddie and Mr. Colin Denis Keogh will not be eligible to be members of the Independent
Board Committee.
•
Mr. Simon Murray (a non-executive Director) is interested in the Convertible Notes.
Completion will trigger the “Change of Control” provisions of the Convertible Notes
which allow the holder of the Convertible Notes (i.e. GSHL) to require redemption of the
Convertible Notes in whole or in part before they expire on 17 August 2015. This exit right
is not enjoyed by any Shareholders because GSHL can require full redemption even before
the Offers are launched. On the other hand, the approval of the Executive of the Special
Deals is one condition precedent to the completion of the Greenheart Resources Agreement,
and Completion depends on the completion of the Greenheart Resources Agreement, and
the obligation to make the Offers is triggered by Completion. From the above, Mr. Murray
has an interest in (i) the Special Deals; and (ii) the Offers, other than being a Shareholder
or a holder of securities who may only exit by accepting the respective Offers. Such interest
would undermine the “independence” of the Independent Board Committee if Mr. Murray
were included. Therefore, the Company is of the view that Mr. Murray should also be
excluded from the Independent Board Committee in respect of (i) the Special Deals; and (ii)
the Offers.
28
LETTER FROM SOMERLEY
We have been appointed as the Independent Financial Adviser to advise the Independent Board
Committee and the Independent Shareholders in relation to, among other things, (i) the Special Deals; and
(ii) the Silver Mount Waivers. Our appointment has been approved by the Independent Board Committee.
BASIS OF OUR ADVICE
We are not connected with the Company, Newforest, Sino-Capital, EPGL, EPHL or any of their
respective close associates, associates or core connected persons (as defined in the Listing Rules) or
any party acting, or presumed to be acting, in concert with any of them and accordingly, are considered
suitable to give independent advice on the Special Deals and the Silver Mount Waivers. Apart from the
normal professional fees payable to us in connection with this and similar appointments, no arrangement
exists whereby we will receive any fees or benefits from the Company, Newforest, Sino-Capital, EPGL,
EPHL or any of their respective close associates, associates or core connected persons or any party acting,
or presumed to be acting, in concert with any of them.
In formulating our opinion and recommendation, we have reviewed, amongst others, the Joint
Announcement, the Share Transfer Agreement, the Greenheart Resources Agreement, the annual report of
the Company for the year ended 31 December 2013 (the “2013 Annual Report”) and the interim report
of the Company for the six months ended 30 June 2014 (the “2014 Interim Report”), certain financial
information of the Greenheart Resources, the cashflow forecast of the Company and the information
contained in the Circular. We have also discussed with and reviewed the information provided by the
management of the Group regarding the business and outlook of the Group.
We have relied on the information and facts supplied, and the opinions expressed, by the Directors
and the management of the Group, which we have assumed to be true, accurate, complete and not
misleading in all material aspects as at the date of this letter and will remain as at the date of the SGM.
The Independent Shareholders will be informed as soon as possible if we become aware of any material
change to such information up to the date of completion of the Greenheart Resources Agreement. We
have sought and received confirmation from the Directors and the management of the Group that no
material facts have been omitted from the information supplied and opinions expressed by them to us.
We consider that the information which we have received is sufficient for us to reach our advice and
recommendation as set out in this letter and to justify our reliance on such information. We have no
reason to doubt the truth, accuracy or completeness of the information provided to us or to believe that
any material information has been omitted or withheld. We have not, however, conducted any independent
investigation into the business and affairs of the Group nor have we carried out any independent
verification of the information supplied.
29
LETTER FROM SOMERLEY
PRINCIPAL FACTORS AND REASONS CONSIDERED
In formulating our opinion, we have considered the following principal factors and reasons:
1.
Business and financial information of the Group
(a)
Business of the Group
The principal activities of the Group comprise log harvesting, lumber processing,
marketing and sales of logs and lumber products. The Group operates its business mainly in
two geographical location, namely New Zealand and Suriname.
Acquired in early 2011, the New Zealand division is principally engaged in softwood
log harvesting, marketing and sale of logs and it has been contributing majority of revenue
and profit to the Group. As at 30 June 2014, the radiata pine plantation forest assets managed
by the Group in the Northland region of New Zealand had a total land base of approximately
13,000 hectares, of which approximately 11,000 hectares was net productive area. The
radiata pine produced by the New Zealand division are mainly exported to China and India.
The Suriname division is principally engaged in hardwood log harvesting, timber
processing, marketing and sale of logs and timber products. The Group is a natural forest
concession owner and operator in Suriname and currently manages and operates certain
forest concessions for the exploitation of timber on parcels of land in Suriname with
terms ranging from 10 to 20 years. In February 2014, the Group completed the acquisition
of certain forest concessions in Central Suriname of approximately 91,750 hectares of
natural tropical hardwood forest in Suriname (“Suma”), which were previously held by the
Group under a two-year exclusive cutting right agreement. As at 30 June 2014, the total
forest concessions under management by the Group in Suriname covered a land area of
approximately 322,000 hectares.
(b)
Financial information of the Group
(i)
Financial results
The following are summaries of the consolidated statement of comprehensive
income of the Group for the years ended 31 December 2013 and 2012 and the six
months ended 30 June 2014 and 2013 as extracted from the 2013 Annual Report and
the 2014 Interim Report respectively.
30
LETTER FROM SOMERLEY
For the six months ended For the year ended
30 June
31 December
2014201320132012
HK$
HK$ HK$
HK$
(million)(million)(million)(million)
Revenue
354.2319.0724.6495.2
Cost of sales/goods sold (Note)
(276.9)(208.4)(389.1)(308.8)
Gross profit (Note)
77.3110.6335.5186.4
Fair value (loss)/gain on plantation
forest assets
Selling and distribution costs
Administrative expenses
Finance costs
Others
(66.9)
24.8
108.8
94.8
(108.6)
(95.8)
(224.2)
(169.7)
(36.6)(41.3)(89.1)(79.5)
(21.7)(26.7)(47.3)(40.0)
(32.1) 2.0 (97.6)(122.7)
Loss before tax
(188.6)
Tax
(26.4)
(13.9)
(130.7)
31.1 (20.3)(46.4)(13.7)
Loss for the period/year
(157.5)
Loss for the period/year
attributable to:
The Shareholders
Non-controlling interests
(46.7)
(60.3)
(144.4)
(127.1)
(24.8)
(5.7)
(76.8)
(30.4)(21.9)(54.6)(67.6)
(157.5)(46.7)(60.3)(144.4)
Note: As disclosed in the 2014 Interim Report, the Group’s gross profit was defined as revenue
less cost of goods sold in prior years. Other expenses such as unallocated production
overheads, write-down/write-back of inventories, amortisation of harvest roading and
provisions for impairment, are separately disclosed in “Other operating expenses” in the
consolidated statement of comprehensive income.
For the six months ended 30 June 2014, the Group’s gross profit was re-defined. The
unallocated production overheads, write-down/write-back of inventories and amortisation
of harvest roading were classified as “Cost of sales” in the consolidated statement of
comprehensive income and provisions for impairment is separately disclosed in the
condensed consolidated statement of comprehensive income for the six months ended 30
June 2014. Accordingly, the comparative amounts for the six months ended 30 June 2013
(for the avoidance of doubt, not for the years ended 31 December 2013 and 2012) have
been reclassified to conform to the presentation for the six months ended 30 June 2014.
31
LETTER FROM SOMERLEY
The Group reported record-high revenue for 2013 of approximately HK$724.6
million, of which the New Zealand division contributed approximately 91.6% and
the Suriname division provided almost the rest. The significant growth in sales
was mainly driven by the increasing demand for the New Zealand radiata pine in
China. Both the export sales volume and the average export selling price of the New
Zealand radiata pine have recorded considerable increases during 2013. For the first
half of 2014, revenue of the Group rose by approximately 11.0% as compared to the
same period in 2013 to approximately HK$354.2 million. The growth was mainly
contributed by the New Zealand division as a result of the high export selling prices
to China during the first four months of 2014, in particular when the aforesaid price
reached its historical peak in March 2014, and a further improvement in sales of the
Suriname division.
The gross profit and the gross profit margin of the Group for 2013 increased
from approximately HK$186.4 million for 2012 by approximately 80.0% to
approximately HK$335.5 million for 2013 and from 37.6% for 2012 to 46.3% for
2013 respectively. The improvements in both gross profit and gross profit margin
were chiefly driven by the increased average selling prices of the New Zealand
radiata pine. However, both the gross profit and the gross profit margin of the Group
decreased for the six months ended 30 June 2014, which were largely due to the
increase in non-cash forest depletion cost as a result of the increase in fair value of
the plantation forest assets located in New Zealand as at 31 December 2013 and the
increase of unit harvesting cost due to the appreciation of the New Zealand currency,
respectively.
The loss for the year attributable to the Shareholders reduced significantly from
approximately HK$76.8 million for 2012 by approximately 92.6% to approximately
HK$5.7 million for 2013. The improvement in the financial result of the Group for
2013 was mainly attributable to the growths in sales and margin of the New Zealand
radiata pine and the implementation of cost control measures in the last quarter of
2013. The financial result of the Group however deteriorated substantially for the
six months ended 30 June 2014 due to two large non-cash losses. First is a fair value
loss on plantation forest assets located in New Zealand amounted to approximately
HK$66.9 million, which was recognised during the first half of 2014 as compared to
a gain of approximately HK$24.8 million for the corresponding period in 2013, as a
result of significant decline in the spot market price of the New Zealand radiata pine
on 30 June 2014 as compared to that on 31 December 2013. Second, provisions for
impairment, in particular a goodwill of approximately HK$27.9 million in relation
to the Group’s investment in Suma, were charged to the financial result of the Group
for the six months ended 30 June 2014 after an unexpected significant increase in
the forest concession levy announced by the Suriname government in early 2014.
Compounded with the drop in gross profit contribution as mentioned above, the loss
attributable to the Shareholders surged considerably from approximately HK$24.8
million for the six months ended 30 June 2013 by approximately 4.1 times to
approximately HK$127.1 million for the corresponding period in 2014.
32
LETTER FROM SOMERLEY
(ii)
Financial positions
The following are summaries of the consolidated statements of the financial
position of the Group as at 30 June 2014, 31 December 2013 and 31 December 2012
as extracted from the 2014 Interim Report and the 2013 Annual Report.
As at 30 June
As at 31 December
201420132012
HK$HK$HK$
(million)
(million)
(million)
NON-CURRENT ASSETS
Property, plant and equipment
Timber concessions and cutting rights
Plantation forest assets
Other non-current assets
483.0
759.9
397.1
63.2
Total non-current assets
1,703.2
CURRENT ASSETS
Cash and cash equivalents
Other current assets
123.1
164.2
Total current assets
287.3
CURRENT LIABILITIES
Loan from holding companies/former
holding company
Balances with related parties
Convertible bonds
Other current liabilities
374.4
23.2
161.3
112.1
Total current liabilities
671.0
NET CURRENT LIABILITIES
31.4
195.0
101.1
Total non-current liabilities
327.5
NET ASSETS
1,726.4
1,684.1
204.0
232.2
144.3
177.8
436.2
322.1
312.0
22.7
155.9
102.8
312.0
22.7
214.7
84.0
593.4
633.4
1,319.51,569.21,372.8
NON-CURRENT LIABILITIES
Loans from holding company
Interest-bearing bank borrowings
Other non-current liabilities
407.5
738.1
500.7
37.8
(383.7)(157.2)(311.3)
TOTAL ASSETS LESS CURRENT
LIABILITIES
458.3
710.8
521.8
35.5
89.7
195.0
144.3
62.4
–
117.5
429.0
179.9
992.01,140.21,192.9
EQUITY
Equity attributable to the Shareholders
Non-controlling interests
892.2
99.8
1,010.0
130.2
TOTAL EQUITY
1,008.1
184.8
992.01,140.21,192.9
33
LETTER FROM SOMERLEY
The non-current assets of the Group were relatively stable in general as at
31 December 2012, 31 December 2013 and 30 June 2014. The property, plant and
equipment mainly comprised forestry land in New Zealand, buildings and capital
roadings and plant and machinery. Timber concessions and cutting rights represent
the forest concessions and cutting rights for the exploitation of timbers on parcels of
land in Suriname with terms ranging from 10 to 20 years. Plantation of forest assets
represent the radiata pine plantation forest assets managed by the Group in New
Zealand. The decrease in the plantation forest assets during the period of six months
ended 30 June 2014 was mainly attributed to the recognition of fair value loss of
approximately HK$66.9 million as a result of significant decline in the spot market
price of the New Zealand radiata pine on 30 June 2014 as compared to that on 31
December 2013.
The liquidity positions of the Group have not been very satisfactory. The cash
balance was approximately HK$123.1 million and the net current liabilities were
approximately HK$383.7 million as at 30 June 2014. Consequently, the Group’s
operations have been significantly financed by its related parties. As at 30 June 2014,
the Group had related party borrowings consisting of, among others, (i) loans from
EPGL (i.e. the EPGL Loan) with an aggregate principal amount of US$40.0 million
(equivalent to approximately HK$312.0 million), which carried an interest rate at
the LIBOR plus 3.5% per annum and were unsecured and repayable on 17 May
2015; (ii) loans from Sino-Capital with aggregate principal amount of approximately
US$12.0 million (equivalent to approximately HK$93.6 million), which carried
an interest rate at the Prime Rate per annum and were unsecured and repayable on
various dates from 26 March 2015 to 19 June 2017; and (iii) convertible notes issued
to a company which Mr. Simon Murray, a non-executive Director, has interest as an
indirect substantial shareholder of its fund manager, with an aggregate outstanding
principal amount of US$17.0 million (equivalent to approximately HK$132.6 million),
which had a coupon rate of 5% per annum and a conversion price of HK$2.002 and
will be matured on 17 August 2015. In addition to the above, the Group also had
bank borrowings from Bank of New Zealand (“Bank of NZ”) of US$25.0 million
(equivalent to approximately HK$195.0 million), which carried a base rate, as
determined by Bank of NZ, plus 1.65% per annum, and were secured and had a final
maturity date of 28 February 2017. As a result of the potential change in control of
the Company contemplated under the Share Purchase Agreement, a waiver or consent
from Bank of NZ will be required pursuant to a certain loan facility agreement
with Bank of NZ for the implementation of the transactions under the Greenheart
Resources Agreement and the Share Purchase Agreement. Please refer to paragraph
headed “(e) Conditions precedent” under the section headed “4. Key terms and
conditions of the Greenheart Resources Agreement” in this letter below for further
details of the required waiver or consent from Bank of NZ.
As at 30 June 2014, the net assets value attributable to the Shareholders stood
at approximately HK$892.2 million. Based on the total number of issued Shares of
789,889,104 as at the Latest Practicable Date, the net asset value attributable to the
Shareholders as at 30 June 2014 was approximately HK$1.13 per Share.
34
LETTER FROM SOMERLEY
(c)
Outlook of the Group
As discussed above, the financial result of the Group during the six months ended 30
June 2014 was significantly impacted by the fair value loss on its plantation assets in New
Zealand due to a fall in the price of export logs towards the end of the first half of 2014, and
a provision for impairment of goodwill in relation to the acquisition of Suma due to the sharp
increase in the concession levy.
The export price of New Zealand radiata pine had bottom out in the early second
half of 2014 and the management of the Group anticipated that the reduction of inventories
in China would take several months to occur and the export price of New Zealand radiata
pine would gradually return to the projected long-term average price by end of 2014.
Consequently, the total targeted harvest volume for 2014 had been reduced from 700,000 m3
by approximately 10.6% to 626,000 m3.
In respect of the increase in forest concession levy in Suriname, the Group would
keep on working closely with other industry participants to negotiate with the Suriname
government’s advisors with a view to reach a solution on the appropriate level of concession
levy acceptable to all parties.
Internally, management of the Group continued to focus on improving the
operational efficiency of the west Suriname operation as well as expanding and renovating
Suma’s sawmill plant. It was expected that extra cash resources would be required for
implementation of these enhancement programs. The profitability of the Suriname operations
was anticipated to improve once the aforesaid enhancement programs complete.
In general, the financial performance of the Group will continue to be hinged
on, among other things, the future export price of New Zealand radiata pine which had
been fluctuated significantly in the last few months, the results of the negotiations in
Suriname regarding the forest concession levy and the success of the implementation of the
enhancement program in its west Suriname operation. Furthermore, given the limited cash
resources, the proposed enhancement programs to be implemented in Suriname will likely to
put pressure on the already tight liquidity position of the Group.
2.
Business and financial information of the Greenheart Resources Group
(a)
Business and outlook of the Greenheart Resources Group
Greenheart Resources and its subsidiaries (the “Greenheart Resources Group”)
primarily engage in forestry operations, i.e. activities including but not limited to hardwood
log harvesting, timber processing, marketing and sale of logs and timber products, in West
Suriname, South America. As at the Latest Practicable Date, Greenheart Resources was
jointly owned as to 60.39% by Silver Mount, a wholly-owned subsidiary of the Company,
and 39.61% by Sino-Capital, the controlling shareholder of the Company. The 39.61% equity
interest in Greenheart Resources (i.e. the Greenheart Resources Shares) is one of the subject
matters of the Greenheart Resources Agreement.
35
LETTER FROM SOMERLEY
As at 30 June 2014, the Greenheart Resources Group held tropical hardwood
concessions with total land base of approximately 185,000 hectares with terms ranging
from 10 to 20 years (with rights to renewal) in West Suriname, South America. Suriname is
the smallest country in South America and situated between French Guiana to the east and
Guyana to the west. The southern border is shared with Brazil and the northern border is
on the Atlantic coast. The estimated forest area of Suriname is approximately 14.8 million
hectares, which is over 94% of the total land area. The Group is the largest forest operator in
Suriname.
For the aforesaid tropical hardwood concessions, Greenheart Resources entered into
the relevant concessions directly with the Foundation for Forest Management and Production
Control (“SBB”), the forestry authority representing the Suriname government. As explained
by management of the Group, due to limited processing capabilities in the previous years,
the Greenheart Resources Group has concentrated on exporting logs. After completion the
phase one of the processing facility, the Greenheart Resources Group put forth more effort
on developing the overseas markets and marketing channels for lumber exports. The logs
produced by the Greenheart Resources Group are exported to China, while lumber products
are mainly exported to China, Europe and the United States and sold domestically in
Suriname. Due to the higher profit margins of the lumber products, the Greenheart Resources
Group is planning to move towards exporting processed lumber products as much as possible
in the coming years.
Greenheart Resources’ West Suriname processing sawmill is located near its forest
concessions and covers an area of 20 hectares. It currently has three production lines with
a total log input capacity per annum (double shift) of approximately 60,000 m3. The latest
completed production line of the Greenheart Resources Group’s sawmill was commissioned
in August 2012. The sawmill is one of the largest of its kind in South America. Greenheart
also completed the construction of a bio-energy plant in the third quarter of 2014 to convert
the sawmill waste into green bio-energy to reduce the power costs of the sawmill by more
than 80%. The management of the Greenheart Group expects the benefits of lower energy
costs, especially from the reduction of fossil fuel consumption, will accrue in 2015.
Based on our discussion with management of the Group, the priorities given to the
Greenheart Resources Group would be to reduce operating costs, to improve the efficiency
of the entire operation as well as to strengthen the collaboration between forestry operations,
sawmill production, sales and logistics. The enhancement of the plant layout, streamlining of
material flows, the optimisation of product mix, the sub-contracting of certain services and
the commissioning of the bio-energy plant to reduce power costs are some key initiatives
implemented by management of the Greenheart Resources Group to achieve such priorities.
The final stage of the production capacity enhancement program will be completed by the
first half of 2015. By then, the log input volume will increase to up to 100,000 m3 (double
shift) per annum from 60,000 m3. Through this program, management of the Greenheart
Resources Group aims to enhance sawmill operational efficiency, expand capacity and
increase the proportion of high value-added lumber products and the spectrum of wood
species to generate higher profit margins for the business.
36
LETTER FROM SOMERLEY
West Suriname currently harvests over 30 different species of commercial hardwood.
Given 11 additional new kilns have now been in operation since the last quarter of 2014,
West Suriname is better positioned to improve its product mix by increasing the proportion
of high value-added lumber products, resulting in higher profit margins.
Continued cost reduction is vital to the turnaround of West Suriname’s sawmill
operation. The management of the Greenheart Resources Group will continue to take further
measures to reduce operating costs while maintaining controls and improving operational
efficiency and sales order fulfillment.
In 2012, the West Suriname operation obtained Forest Stewardship Council* (“FSC”)
controlled wood certification. It has just completed a full FSC assessment following which
it is expected that West Suriname will advance to full FSC certificate accreditation in
early 2015. Such advanced accreditation should facilitate premium pricing and increased
penetration into the United States and, in particular, European markets which increasingly
require FSC products.
The significant increase in the forest concession levy (from 0.01 Suriname dollars
per hectare per year to 20.00 Suriname dollars per hectare per year) in Suriname, introduced
by the Suriname government in early 2014, was met resistance from the Suriname forestry
industry. In response, the Suriname government appointed advisors with timber industry
experience to work with industry participants and to report and advise on an appropriate
level of concession levy. At as the Latest Practicable Date, negotiations between the industry
and the Suriname government are continuing. The Group will continue to work with other
industry participants and the advisors to the Suriname government in order to reach a more
reasonable solution which is equitable to all parties. As at the Latest Practicable Date,
the Greenheart Resources Group has accrued but not paid the increased concession levy,
amounting to approximately HK$10.1 million.
Based on the latest internal assessment of the management of the Group, the Group
will still need to contribute cash to the West Suriname operation during 2015 before it
becomes cash flow neutral.
(b)
Financial information of the Greenheart Resources Group
(i)
Financial performance
The following is a summary of the consolidated statement of comprehensive
income of the Greenheart Resources Group for the years ended 31 December 2013 and
2012 as extracted from the audited consolidated financial statements of the Greenheart
Resources Group for the year ended 31 December 2013.
* The FSC is an international not-for-profit organisation established in 1993 to promote responsible management
of the world’s forests. Its main tools for achieving this are standard setting, certification and labelling of forest
products.
37
LETTER FROM SOMERLEY
For the year ended
31 December
20132012
HK$ (million)
HK$ (million)
(Audited)(Audited)
Revenue
Cost of goods sold
41.335.6
(26.4)
(14.1)
Gross profit
Other revenue and gains
Selling and distribution expenses
Administrative expenses
Other operating expenses
Finance costs
14.9
21.5
5.0
(14.0)
(36.7)
(45.8)
(20.5)
2.8
(13.0)
(30.3)
(39.7)
(15.7)
Loss before taxation
(97.1)
Taxation
(74.4)
––
Loss for the year
(97.1)
(74.4)
Due to the increased production and sales driven by the additional production
line commissioned in August 2012 as well as the changing sales mix with additional
sales of higher margin lumber products, the revenue of the Greenheart Resources
Group increased to approximately HK$41.3 million for the year ended 31 December
2013 from approximately HK$35.6 million for the year ended 31 December 2012,
representing an increase of approximately 16.0%. The cost of goods sold for the year
ended 31 December 2013 increased more significantly to approximately HK$26.4
million, representing an increase of approximately 87.2% from that for the year
ended 31 December 2012. The considerable increase in cost of goods sold was also
attributable to the changes in sales mix with more lumber products which were of
higher production costs as compared to round logs. The Greenheart Resources Group
recorded a gross profit of approximately HK$14.9 million for the year ended 31
December 2013, representing a decrease of approximately 30.7% from approximately
HK$21.5 million for the year ended 31 December 2012. The decrease in gross profit
was mainly attributable to the low average selling prices due to clearance sales of
certain lower grade lumber and aged logs which had lower margins. During 2013,
due to operational inefficiencies and underutilised production capacity, both the
administrative expenses and other operating expenses increased as a result of the
recognition of certain unallocated operating and manufacturing overhead expenses
in the Suriname logging and sawmill operations. These unallocated operating and
manufacturing overhead expenses were mainly attributable to a slow-down in forestry
activities and certain sawmill activities in order to synchronise them with installed
38
LETTER FROM SOMERLEY
processing facilities in West Suriname thereby the actual overhead expenses exceeded
the standard overhead expenses such as subcontracting expenses, utilities and fuels
expenses, production staff costs and depreciation. In addition, a change in log species
mix input into the sawmill too often (with the primary objective of producing a wider
variety of products for customers) also affected the sawmill’s overall performance as
it increased machinery set-up time and impacted efficiency.
The loss for the year ended 31 December 2013 increased to approximately
HK$97.1 million from approximately HK$74.4 million for the year ended 31
December 2012, representing an increase of approximately 30.5%. The increase in
loss in 2013 was a combination of the above rise in cost of goods sold, administrative
expenses and other operating expenses. As confirmed by the Directors, save as
discussed above regarding the increase in forest concession levy in Suriname, the
decrease in average export selling prices due to a higher proportion of low grade
products being sold and higher production expenses, there had not been any material
change in the trend of the financial performance of the Greenheart Resources Group
since the year ended 31 December 2013 and until the Latest Practicable Date.
(ii)
Financial positions
The following is a summary of the consolidated statements of the financial
position of the Greenheart Resources Group as at 31 December 2013 and 31 December
2012 as extracted from the audited consolidated financial statements of the Greenheart
Resources Group for the year ended 31 December 2013.
39
LETTER FROM SOMERLEY
As at 31 December
20132012
HK$ (million)
HK$ (million)
(Audited)(Audited)
NON-CURRENT ASSETS
Property, plant and equipment
Prepaid land lease payments
Timber concessions and cutting rights
Other intangible assets
Goodwill
Prepayment, deposits and other
receivables
180.7
165.6
3.2
3.3
8.9
9.1
0.7
0.8
7.67.6
1.0
6.7
202.1193.1
CURRENT ASSETS
Due from the immediate holding company
Due from fellow subsidiaries
Inventories
Trade receivables
Prepayments, deposits and other
receivables
Cash and bank balances
–
11.7
3.4
1.8
28.914.9
5.2
5.3
11.3
16.5
5.9
38.1
65.377.7
CURRENT LIABILITIES
Loan from the immediate holding company
Due to the immediate holding company
Due to a fellow subsidiary
Trade payables
Other payables and accruals
Deposit received from a fellow subsidiary
Finance lease payables
–
18.1
1.4
4.8
11.1
22.6
5.4
205.4
–
1.0
2.7
20.2
22.5
2.7
63.4254.5
Net current assets/(liabilities)
1.9
(176.8)
Total assets less current liabilities
204.0
16.3
NON-CURRENT LIABILITIES
Loans from the immediate holdings company
Loans from a non-controlling shareholder
Finance lease payables
351.8
89.7
9.4
95.1
62.4
8.6
450.9166.1
NET LIABILITIES
(246.9)(149.8)
40
LETTER FROM SOMERLEY
The property, plant and equipment mainly comprised buildings and capital
roadings, plant and machinery and construction in progress. The increase in the
property, plant and equipment during the year ended 31 December 2013 was mainly
attributed to the capital investment for the construction of drymill, acquisition of plant
and machinery, forestry infrastructure and heavy equipment in Suriname.
The liquidity positions of the Greenheart Resources Group has not been
satisfactory. In particular, the cash and bank balance has been decreasing and only
had approximately HK$16.5 million as at 31 December 2013. Moreover, it carried
a minimal net current assets of approximately HK$1.9 million on the same date.
Inventories of the Greenheart Resources Group, which mostly made up of logs and
lumber products, have been built up during the period under review. The inventories
balance increased from approximately HK$14.9 million as at 31 December 2012 to
approximately HK$28.9 million as at 31 December 2013. The increase was mainly
because more lumber were produced after completion of the phase one of the
processing facility, which included the addition of a new sawmill production line.
The Greenheart Resources Group’s operations were mainly financed by related
party borrowings provided by its shareholders, namely Silver Mount and SinoCapital. As at 31 December 2013, the Greenheart Resources Group had related party
borrowings consisting of, among others, (i) loans from Sino-Capital with aggregate
principal amount of approximately US$11.5 million (equivalent to approximately
HK$89.7 million), which carried an interest rate at the Prime Rate per annum and
were unsecured and repayable on various dates from 26 March 2015 to 28 June 2016;
and (ii) loans from Silver Mount with aggregate principal amount of approximately
US$45.1 million (equivalent to approximately HK$351.8 million), which carried
an interest rate at the Prime Rate per annum and were unsecured and repayable on
various dates from 26 March 2015 to 22 November 2016.
As at 30 June 2014, the Greenheart Resources Group had an unaudited
net liabilities of approximately HK$301.5 million. After taking into account the
adjustments of the carrying fair value of the assets acquired and liabilities assumed
upon acquisition of the Greenheart Resources Group in 2007 made on the consolidated
financial statements of the Group, the Greenheart Resources Group would have an
unaudited adjusted consolidated net asset value of approximately HK$340.0 million
(or US$43.59 million), of which HK$134.67 million (or US$17.27 million) would be
attributable to the Greenheart Resources Shares representing approximately 39.61%
of the issued share capital of Greenheart Resources as at the Latest Practicable Date.
Details of the fair value adjustment are set out in the paragraph headed “Information
about Greenheart Resources” under the section headed “C. Greenheart Resources
Agreement” in the letter from the Board in the Circular.
41
LETTER FROM SOMERLEY
3.
Industry overview
As a majority of the forestry products of the Greenheart Resources Group are sold to the
Chinese market, we have explored the significance of this market.
China has achieved gross domestic product growth averaging more than 10% a year over last
decade and lifted more than hundreds of millions of people out of poverty. Being the most populous
country in the world with a population of 1.3 billion as well as the second largest economy, China
is increasingly playing a key role in shaping the global economy. In the Chinese government’s
latest policy address, China’s 12th Five-Year Plan (2011-2015) (the “FYP”) has set an annual
growth target of 7%, being lower than the previous five-year plan of 7.5%.
The FYP turned into a host of economic policies aiming to improve the lives of the people
as well as promoting a growing segment of middle-income consumers. With this growing middleincome consumers, naturally comes with the demand for better housing and furnishing. In terms
of furnishing, China currently has strong demand for wood-based, roof and wall framing, flooring,
doors, window frames and trim, furniture and interior decoration items. The annual production of
wood and bamboo-based flooring and wood furniture between 2007 and 2011 had increased at a
compound annual growth rate (“CAGR”) of approximately 23.0% and 4.2%. China’s annual timber
consumption in 2011 was approximately 500 million m3, of which approximately 45% of such
demand was met by imports. The CAGR of China’s annual timber consumption between 2007 and
2011 was approximately 8.5%. According to the State Forestry Administration (the “SFA”), it is
expected that China’s appetite for log and lumber imports will continue as the China growth story
continues. The SFA estimated that China’s annual timber consumption by 2020 will reach 800
million m3.
We are of the view that external market forces are generally positive for the Group in the
medium term. However there remain challenges for the Greenheart Resources Group to optimise its
operations and to arrive at an acceptable result of its negotiation with the SBB on a reasonable level
of forest concession levy to achieve better economics for its business as discussed in paragraph
headed “(a) Business and outlook of the Greenheart Resources Group” under the section headed “2.
Business and financial information of the Greenheart Resources Group” in this letter above.
42
LETTER FROM SOMERLEY
4.
Key terms and conditions of the Greenheart Resources Agreement
(a)Date
31 October 2014
(b)Parties
Vendor of the Greenheart Resources Shares:
Sino-Capital
Vendors of the Debt Interests:
Sino-Capital and EPGL
Purchaser:Newforest
Warrantors:
Sino-Capital and EPGL
Convenator:EPHL
(c)
The sale of the Greenheart Resources Shares and the Debt Interest
Pursuant to the Greenheart Resources Agreement, (i) Sino-Capital conditionally
agreed to sell, and Newforest conditionally agreed to purchase the Greenheart Resources
Shares, being 3,036,000,000 ordinary shares of Greenheart Resources (representing
approximately 39.61% of the issued share capital of Greenheart Resources); and (ii) SinoCapital and EPGL conditionally agreed to sell, and Newforest conditionally agreed to
purchase, all the benefits and obligations of the Debt Interests.
Immediately after completion of the Greenheart Resources Agreement, Sino-Capital
will no longer hold any shares in Greenheart Resources.
43
LETTER FROM SOMERLEY
(d)
Consideration and payment terms
Components of the consideration under the
Greenheart Resources Agreement
US$
(equivalent amount
in HK$)
Greenheart Resources Shares
US$10,000,000
HK$78,000,000
Principal amount of the EPGL Loan
US$40,000,000
HK$312,000,000
Principal amount of the Sino-Capital Loans
US$13,466,960
(Note 1)
HK$105,042,288
Sub-total
US$63,466,960HK$495,042,288
Any accrued but unpaid interest of the
Debt Interests as of the date of completion
of the Greenheart Resources Agreement
US$613,875
(Note 2)
HK$4,788,225
Total
US$64,080,835HK$499,830,513
(Note 2)
Notes:
1.
The principal amount of the Sino-Capital Loans as at the Latest Practicable Date is for illustration
purpose only. After the Latest Practicable Date, the principal amount of the Sino-Capital Loans
may include the principal amount of any additional Sino-Capital Loans borrowed by Greenheart
Resources from Sino-Capital after the Latest Practicable Date and up to and including the date of
completion of the Greenheart Resources Agreement to finance its operations (which may be up to
US$1,033,040 (equivalent to approximately HK$8,057,712) pursuant to the Greenheart Resources
Agreement). The principal amount of the Sino-Capital Loans could amount to US$14,500,000
(equivalent to approximately HK$113,100,000).
2.
The amounts above are calculated based on the aggregate amount of accrued but unpaid interest
of the EPGL Loan and the Sino-Capital Loans as at the Latest Practicable Date and are set out for
illustration purpose only. The actual amount payable will be determined based on the accrued but
unpaid interest of the Debt Interests as of the date of completion of the Greenheart Resources on a
dollar-for-dollar basis.
As set out in the letter from the Board in the Circular, the above consideration has
been agreed among Sino-Capital, EPGL, EPHL and Newforest after arm’s length negotiation
on normal commercial terms. The consideration for the Greenheart Resources Shares to be
paid at completion of the Greenheart Resources Agreement is calculated based on the book
value and prospects of future profits of Greenheart Resources.
Under the terms of the Greenheart Resources Agreement, the payment of an amount
equal to 24.99% of the sum of the consideration under (i) the Share Purchase Agreement
and (ii) the Greenheart Resources Agreement (the “Delayed Payment”) is deferred, and is
payable by Newforest to EPGL on the date falling on the first year anniversary of the date
of the Greenheart Resources Agreement. Newforest’s obligation to pay the Delayed Payment
under the Greenheart Resources Agreement is unconditionally and irrevocably guaranteed
44
LETTER FROM SOMERLEY
by Sharpfield Holdings Limited pursuant to a deed of guarantee entered into between EPGL
and Sharpfield Holdings Limited, a wholly-owned subsidiary of Chow Tai Fook Enterprises
Limited, on the date of the Greenheart Resources Agreement.
(e)
Conditions precedent
Completion of the Greenheart Resources Agreement is conditional upon the following
Greenheart Resources Conditions being satisfied, among other things:
(i)
Silver Mount Waivers having been given by Silver Mount and approved by the
Independent Shareholders at the SGM;
(ii)
a copy of the duly executed, undated deed of release having been delivered
by the Vendor in relation to security granted by EPGL and Sino-Capital in
connection with certain of EPHL’s guaranteed debt;
(iii) receipt by Newforest of the OIO Approval in respect of the transactions
contemplated under the Share Purchase Agreement;
(iv) receipt by Newforest of a copy of the duly executed waiver of the right of
review under a certain loan facility agreement between the Bank of New
Zealand and Greenheart MFV Limited (an indirect wholly-owned subsidiary of
the Company) relating to a term loan facility for an aggregate principal amount
of US$25,000,000 and a variable overdraft facility, in respect of, or preemptive consent to, the implementation of the transactions under the Greenheart
Resources Agreement and the Share Purchase Agreement; and
(v)
approval by the Independent Shareholders and the Executive for the
implementation of the transactions contemplated under the Greenheart
Resources Agreement and the transactions contemplated under the Share
Purchase Agreement to the extent required pursuant to the Takeovers Code and
the Listing Rules.
Other Greenheart Resources Conditions are set out in the letter from the Board in the
Circular.
Newforest may waive condition (iv) above. The above conditions (i) to (iii) and
(v), which include certain regulatory approvals, may be waived by Sino-Capital and
Newforest if they agree to such waiver(s) in writing. As set out in the letter from the Board
in the Circular, Sino-Capital has informed the Company that it intends to comply with its
obligations to Silver Mount in respect of Silver Mount’s right of first refusal and co-sale
right, in each case, in respect of the Greenheart Resources Shares. In other words, SinoCapital has the intention of not exercising its right to waive condition (i) above in the event
that such condition is not fulfilled. Moreover, as set out in the letter from the Board in
the Circular, Sino-Capital has advised the Company that it will not waive the Greenheart
Resources Condition (v) above.
45
LETTER FROM SOMERLEY
The Greenheart Resources Agreement shall automatically terminate in accordance
with its terms if the Greenheart Resources Conditions are not satisfied on or prior to 31
March 2015, which shall be automatically extended for up to three additional periods of 30
days each if all of the Greenheart Resources Conditions are satisfied or capable of being
satisfied and Newforest is still seeking the OIO Approval.
(f)Completion
The Greenheart Resources Agreement following its becoming unconditional will be
completed simultaneously with the Share Purchase Agreement.
5.
The Silver Mount Waivers
(a)Background
The transfer of the Greenheart Resources Shares by Sino-Capital to Newforest as
contemplated under the Greenheart Resources Agreement is subject to Silver Mount’s right
of first refusal whereby Silver Mount has the right to acquire such Greenheart Resources
Shares at the same price as that in the Greenheart Resources Agreement. Further, Silver
Mount has the co-sale right to require Sino-Capital to cause Newforest to purchase the shares
of Greenheart Resources it holds and the interests in its loans to Greenheart Resources.
However, Silver Mount has decided to conditionally waive these two rights by not exercising
either the aforesaid right of first refusal or the co-sale right (i.e. the Silver Mount Waivers).
(b)
Non-exercise of right of first refusal to acquire the Greenheart Resources Shares
As mentioned in the paragraph headed “(b) Financial information of the Group”
under the section headed “1. Business and financial information of the Group” in this letter
above, the liquidity positions of the Group have not been very satisfactory. The cash balance
was approximately HK$123.1 million and the net current liabilities were approximately
HK$383.7 million as at 30 June 2014. The immediate financial needs on the operational
enhancement to be carried out in the West Suriname operations as well as the expansion
plans for the New Zealand operations will also require substantial capital commitment. If
the right of first refusal is exercised, the Company will have to utilise up to US$10 million
(equivalent to approximately HK$78 million), which represents 63.4% of the Group’s cash
resources as at 30 June 2014, to pay the consideration for the Greenheart Resources Shares
held by Sino-Capital.
Moreover, should the right of first refusal is exercised and Sino-Capital cease to be a
shareholder of Greenheart Resources, it is doubtful if the Sino-Capital Loans, a significant
portion of which will fall due in March 2015, will be extended by Sino-Capital upon their
maturities. In the event that the Sino-Capital Loans are not extended, the repayment of the
Sino-Capital Loans will add further pressure to the already strained liquidity positions of the
Group.
46
LETTER FROM SOMERLEY
We have reviewed the working capital forecast of the Group up to 31 March 2016 as
prepared by management of the Group and note that in order to fund the amount of capital
required for the exercise of the right of first refusal, the Group may need to realise some of
its long-term assets, which may not be in the best interests of the Group and the Shareholders
as a whole.
(c)
Non-exercise of co-sale right in respect of the transfer of the Greenheart Resources
Shares
(i)
P/B Multiples of the Comparable Companies
The Greenheart Resources Group primarily engage in and generate all of
their revenue and profit or loss from their forestry operations in West Suriname. In
assessing the fairness and reasonableness of the non-exercise of the co-sale right
in respect of the transfer of the Greenheart Resources Shares by Sino-Capital to
Newforest, we have attempted to compare the pricing ratios represented by the
consideration for the transfer of the Greenheart Resources Shares against the market
valuation of listed companies in Hong Kong with principal activities of forestry
operations (the “Hong Kong Forestry Companies”). However, except for the
Company, (i) trading in the shares of other Hong Kong Forestry Companies have
been suspended (including China Asean Resources Limited (stock code: 8186), Dejin
Resources Group Company Limited (stock code: 1163), China Forestry Holdings Co.
Ltd. (stock code: 930) and Superb Summit International Group Limited (stock code:
1228)); (ii) the forestry operations of other Hong Kong Forestry Companies have
been terminated or suspended (including China Agroforestry Low-Carbon Holdings
Limited (stock code: 1069), Merdeka Mobile Group Limited (stock code: 8163),
Sustainable Forest Holdings Limited (stock code: 723) and Yueshou Environmental
Holdings Limited (stock code: 1191)) for various reasons; and/or (iii) the forestry
operations of the Hong Kong Forestry Companies directly contribute less than 50%
of revenue or profit (including China Resources and Transportation Group Limited
(stock code: 269) and Nature Home Holding Company Limited (stock code: 2083)).
Accordingly, the pricing ratios of the aforesaid Hong Kong Forestry Companies were
not meaningful for valuation purpose. In particular, the valuations of the Hong Kong
Forestry Companies with forestry operations directly contributing less than 50% of
revenue and/or profit are considered not comparable for our analysis on the basis that
the valuations of these companies are more likely to be based on, among other things,
the other business operations or assets held by them, but not the forestry operations
given their insignificance of revenue and/or profit contributions. We have therefore expanded our review to companies listed on stock
exchanges located in Asia, North America and Western Europe with principal
activities that are broadly comparable to that of the Greenheart Resources Group
and market capitalisation of over HK$100 million as at the Latest Practicable Date
(the “Comparable Companies”). Although the Comparable Companies are listed in
different countries and may subject to different market sentiments, we are of the view
that the Comparable Companies in general represent a fair and representative sample
for our assessment on the basis that (i) the Comparable Companies have principal
activities similar to that of the Greenheart Resources Group and therefore they face
common market environment and operational risks; and (ii) the products of the
Greenheart Resources Group are sold to various international destinations including
China, Europe and the United States and the financial performance and the business
operations of the Greenheart Resources Group are also subject to the sentiments in the
47
LETTER FROM SOMERLEY
different markets where the Comparable Companies are listed. Based on the criteria
above, we have identified 12 Comparable Companies. We consider the selection
of comparable companies with market capitalisation of over HK$100 million a
reasonable criterion as we are of the view that micro-cap listed companies with market
capitalisation of below HK$100 million would likely to be thinly-traded which are
more vulnerable to extreme market movements hence they may not be a representative
indication of value.
As the Greenheart Resources Group has recorded net losses in the recent years,
we have adopted price-to-book multiples (“P/B Multiple(s)”) in the analysis. The list
of the aforesaid Comparable Companies and their respective P/B Multiples are set out
in the table below.
MarketP/B
capitalisation
Multiple
Company name
Stock code Listing location
Principle activities
(HK$ million)
(times)
(Note 1)
West Fraser Timber
WFT
Toronto, Canada
West Fraser Timber Company Limited produces 32,759.0
2.5
Company Limited dimension lumber and related wood products,
fiberboard, pulp, linerboard, kraft paper, and
newsprint. The company has operations in British
Columbia, Alberta and in the southern United States.
Canfor Corporation
CFP
Toronto, Canada
Canfor Corporation is an integrated forest
products company that produces and supplies
SPF lumber, oriented strand board, plywood,
kraft pulp and kraft paper. The company
also produces remanufactured lumber products,
hardboard paneling and special baled fibre
products. In addition, Canfor Corporation produces
kraft pulp and newsprint through a joint venture
partnership with Howe Sound Pulp and Paper.
22,525.3
2.5
Interfor Corporation
IFP
Toronto, Canada
Interfor Corporation harvests timber and
manufactures and markets lumber products,
logs, and wood chips. The company has logging
operations and sawmills in Western Canada.
7,909.5
2.0
Deltic Timber Corporation DEL
New York,
Deltic Timber Corporation grows and harvests timber
United States of and manufactures and markets lumber. The company
America is also involved in real estate development projects,
owns farmland, and holds an interest in a joint venture
to manufacture and market medium density fiberboard.
6,279.2
3.0
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LETTER FROM SOMERLEY
MarketP/B
capitalisation
Multiple
Company name
Stock code Listing location
Principle activities
(HK$ million)
(times)
(Note 1)
Western Forest Products Inc. WEF
Toronto, Canada
Western Forest Products Inc. is an integrated forest products company and a coastal woodland
operator located in British Columbia, Canada.
The company’s activities include timber harvesting,
reforestation, sawmilling logs into lumber and
wood chips, value-added remanufacturing, and
producing NBSK pulp. Western Forest’s products
are sold in various countries worldwide.
5,362.5
2.0
Fujian Jinsen Forestry
002679
Shenzhen, China
Fujian Jinsen Forestry Company Limited
Company Limited cultivates, creates, maintains and protects
forests, and sells timber production. The
company’s main product includes wood,
with firs and masson pines as the main species.
3,726.7
1.8
Pope Resources,
POPE
NASDAQ,
Pope Resources, a limited partnership, owns or
A Delaware Limited United States of manages acres of timberland and development
Partnership America property in Washington, Oregon, California,
and British Colombia, Canada. The company
also assists investors in building and managing
timber based investment portfolios.
2,048.4
3.8
Acadian Timber ADN
Toronto, Canada
Acadian Timber Corporation harvests and markets Corporation forest products. The company markets saw logs to
lumber mills, pulp wood to paper mills, and biomass
to electricity generating plants. Acadian Timber
Corporation operates in New Brunswick and Maine.
1,656.2
1.4
Conifex Timber, Inc.
CFF
Toronto, Canada
Conifex Timber, Inc. manufactures forest products.
The company harvests softwood trees and produces
structural grade dimensional lumber.
844.4
1.1
The Company
94
Hong Kong
The Company operates in log harvesting, lumber
processing, marketing and sales of logs and
lumber products. The Company supplies sustainable
wood fiber, primarily to China as well as other
markets around the world.
402.8
(Note 2)
0.5
(Note 2)
176.9
0.5
RusForest AB
RUSF
Stockholm, Sweden RusForest AB produces sawn lumber in Russia.
49
LETTER FROM SOMERLEY
Market
capitalisation P/B Multiple
Company name
Stock code Listing location
Principle activities
(HK$ million)
(times)
(Note 1)
Timberwell Berhad
TWB
Malaysia
Timberwell Berhad is an investment holding
company. Through its subsidiaries, the company
has operations in forest management, timber
harvesting, manufactures and trades timber and
timber related products. Timberwell Berhad also
manufactures and trades plywood, block board, and
invests in property.
152.8
2.1
Average1.9
Median2.0
Maximum3.8
Minimum0.5
Greenheart Resources
Forestry operations in West Suriname.
0.6
(Note 3)
Source: Bloomberg and the latest annual or interim reports of the Comparable Companies.
Notes:
1.
The market capitalisation and the P/B Multiples of the Comparable Companies (except for the
Company) are calculated based on the market capitalisation as at the Latest Practicable Date (for
those listed in Asia) or the business day immediately before the Latest Practicable Date (for those
listed in North America and Western Europe) divided by the most recent consolidated net assets
value attributable to the shareholders of the Comparable Companies as shown in their respective
latest published annual or interim reports.
2.
The market capitalisation and the P/B Multiple of the Company is calculated based on the market
capitalisation as at 16 June 2014, being the last trading day immediately before the publication of
the announcement by the Company regarding, among other things, the possible Offers.
3.
The implied P/B Multiple of the Greenheart Resources Shares of 0.6 times is calculated based
on the consideration for the Greenheart Resources Shares of US$10.0 million (equivalent to
approximately HK$78.0 million) divided by the proportionate (i.e. 39.61%) unaudited adjusted
consolidated net assets of Greenheart Resources as at 30 June 2014 attributable to Sino-Capital (i.e.
HK$134.7 million) as extracted from the audited consolidated financial statement of the Greenheart
Resources Group. The unaudited adjusted consolidated net assets of Greenheart Resources
attributable to the shareholders as at 30 June 2014 of HK$340.0 million was derived at after taking
into account the adjustments of the carrying fair value of the assets acquired and liabilities assumed
upon acquisition of the Greenheart Resources Group in 2007 made on the consolidated financial
statements of the Group.
4.
Keweenaw Land Association, Limited (“Keweenaw Land”, stock code in the over-the-counter
market of the United States of America: KEWL), a partnership association that owns more
timberlands in Michigan used in forest land production and harvesting and also owns various
subsurface and mineral interests, and Forst Ebnath AG (“Forst Ebnath”, stock code in Berlin
stock exchange of Germany: FEB), a company produces forestry products in the areas of Ebnath
and Bayreuth in Bavaria and also owns, manages and leases real estate properties in Berlin and
Potsdam, are not included in the above table as Keweenaw Land and Forst Ebnath had extreme
P/B Multiples of 7.0 times and 8.3 times respectively, which we considered not meaningful for our
analysis.
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LETTER FROM SOMERLEY
The implied P/B Multiple of the consideration for the Greenheart Resources
Shares is approximately 0.6 times, which is lower than the average of that of the
Comparable Companies of 1.9 times.
(ii)
Discount of the consideration for the Greenheart Resources Shares to the net
asset value of Greenheart Resources Group
The unaudited adjusted consolidated net assets of Greenheart Resources
attributable to the shareholders of Greenheart Resources as at 30 June 2014 was
approximately HK$340.0 million. The consideration for the Greenheart Resources
Shares (representing approximately 39.61% of the issued share capital of Greenheart
Resources) of US$10.0 million (equivalent to approximately HK$78.0 million)
therefore represents a discount of approximately 42.1% to the proportionate unaudited
adjusted consolidated net assets of Greenheart Resources attributable to Sino-Capital
as at 30 June 2014 of approximately HK$134.7 million.
In light of the above, we are of the view that the consideration for the Greenheart
Resources Shares under the Greenheart Resources Agreement is not particular attractive
from the point of view of the Shareholders and the Company. Accordingly, it is reasonable
for the Company not to exercise its co-sale right in respect of the transfer of the Greenheart
Resources Shares by Sino-Capital to Newforest to dispose of any part of the Group’s
shareholding in Greenheart Resources.
(d)
Other analyses on the Silver Mount Waivers
In addition to the above analyses on the Silver Mount Waivers, we had also examined
the following other factors and considerations in respect of whether the Silver Mount
Waivers should be given.
Factors and considerations supportive of the non-exercise of the right of first refusal
in respect of the transfer of the Greenheart Resources Shares:
•
There remains uncertainty in the future performance of Greenheart Resources.
Should Silver Mount exercise its right of first refusal to acquire Sino-Capital’s
Greenheart Resources Shares and to control Greenheart Resources 100%, the
risk of West Suriname operation not performing as promised would have a
much greater negative bearing on the part of the Group. In this case, the nonexercise of the right of first refusal in respect of the transfer of the Greenheart
Resources Shares may seem a more conservative option.
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LETTER FROM SOMERLEY
Factors and considerations supportive of the non-exercise of the co-sale right in
respect of the transfer of the Greenheart Resources Shares:
•
As discussed above in paragraph headed “(a) Business and outlook of the
Greenheart Resources Group” under the section headed “2. Business and
financial information of the Greenheart Resources Group” in this letter above,
the Greenheart Resources business holds promise to profitability and growth
potential after completion of the operational enhancement program in West
Suriname. Production capacity and efficiency have been the key concerns of
management of the Group and there had been substantial capital investments
made in West Suriname in the past few years. These developments, combined
with the Group’s wholly-owned Central Suriname operations, are an important
element of the Group’s strategic plans to develop strong customer bases for
FSC – accredited products sold mainly to customers in Europe and China.
The Group’s recent acquisition of Central Suriname in February 2014 was an
evidence of management’s commitment to the Suriname operations. Should
Silver Mount exercise the co-sale right to require Sino-Capital to cause
Newforest to purchase the shares of Greenheart Resources it holds and the
interest in its loans to Greenheart Resources would preclude the Group from
reaping the long-term economic prospects of the entire Suriname operation
after substantial efforts have been made.
•
The two key divisions of the Group are the New Zealand softwood logging
business and the Suriname hardwood logging and lumber business. The
diversity of income stream is important to the Group in hedging the changes of
demand and supply in the forestry industry especially when the New Zealand
operation is more prone to short-term changes in supply and demand. The
retention of Silver Mount’s Greenheart Resources Shares can be seen as crucial
to retain this ability to hedge.
•
Greenheart Resources’ incumbent management team currently oversees both
the West Suriname (i.e. Greenheart Resources) and the Central Suriname (i.e.
Suma) operations. Management of the Group foresee that should all of the
Silver Mount’s Greenheart Resources Shares be sold to Newforest under the cosale right, the loss of control of Greenheart Resources may disrupt the stability
of the Group’s Suriname incumbent management team, whose expertise and
experience in managing forestry operations in emerging markets and their
connections in the industry are vital to the success of the entire Suriname
operation. The consequences of loss of control of Greenheart Resources may
impact the Group’s ability to invest and expand the entire Suriname operation
which is integral to the Group’s overall business.
52
LETTER FROM SOMERLEY
6.
Sale of the Debt Interests
Sino-Capital has extended loans to Greenheart Resources to finance its operations. The
loans owed by Greenheart Resources to Sino-Capital, i.e. the Sino-Capital Loans, had an aggregate
outstanding principal amount of US$13,466,960 as at the Latest Practicable Date. As at the Latest
Practicable Date, the basic information on such loans is set out below:
Outstanding principal amount
Repayment date
US$8,000,000
26 March 2015
US$3,500,000
28 June 2016
US$1,966,960
(Note)
19 June 2017
Interest rate
Prime rate (i.e. 5%)
Prime rate (i.e. 5%)
Prime rate (i.e. 5%)
US$13,466,960
Note: After the Latest Practicable Date, Sino-Capital and Greenheart Resources may amend the principal amount
of this loan facility up to an amount not exceeding US$3,000,000. If they do so and Greenheart Resources
further utilises this loan facility, the principal amount outstanding under this facility may be increased.
In addition, EPGL has extended a loan of US$40 million (i.e. the EPGL Loan) to Mega
Harvest to finance its operations. The EPGL Loan is repayable on 17 May 2015. The interest
applicable to the EPGL Loan accrues at the rate of LIBOR plus 3.5% per annum.
Pursuant to the Greenheart Resources Agreement, Sino-Capital and EPGL will sell and
Newforest will purchase all the benefits and obligations of the Debt Interests upon Completion.
The consideration for the transfer of the EPGL Loan will be US$40 million (equivalent to
approximately HK$312 million) plus any accrued but unpaid interest of the EPGL Loan as of the
date of completion of the Greenheart Resources Agreement. The consideration for the transfer
of the Sino-Capital Loans will be the sum of (a) the total principal amount of the Sino-Capital
Loans of US$13,466,960 (equivalent to approximately HK$105,042,288) outstanding as at the
Latest Practicable Date; (b) the principal amount of any additional Sino-Capital Loan borrowed by
Greenheart Resources from Sino-Capital after the Latest Practicable Date and up to and including
the date of completion of the Greenheart Resources Agreement to finance its operations (which may
be up to US$1,033,040 (equivalent to approximately HK$8,057,712) pursuant to the Greenheart
Resources Agreement); and (c) any accrued but unpaid interest of the Sino-Capital Loans as of the
date of completion of the Greenheart Resources Agreement. In other words, the consideration for
the transfers of the Debt Interests will be on a dollar-for-dollar basis. As at the Latest Practicable
Date, the aggregate amount of accrued but unpaid interest of the EPGL Loan and the Sino-Capital
Loans was approximately US$613,875 (equivalent to approximately HK$4,788,225).
Mega Harvest, together with its subsidiaries (the “Mega Harvest Group”), primarily engage
in forestry operations in New Zealand. As set out in the 2013 Annual Report and the 2014 Interim
Report, the finance performance of the New Zealand operations was satisfactory in 2013 with
growths in revenue and segment results while that in the first half of 2014 was less desirable with
both the revenue and segment profits decreased, after charging the non-cash forest depletion cost
and fair value loss on plantation forest assets as a result of substantial downward adjustment to
the price of New Zealand radiata pine. Notwithstanding the above, the Mega Harvest Group still
maintained a positive net asset value as at 30 June 2014.
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LETTER FROM SOMERLEY
The Greenheart Resources Group primarily engage in forestry operations in West Suriname.
The financial results and positions of the Greenheart Resources Group are summarised in the
section headed “2. Business and financial information of the Greenheart Resources Group” in this
letter above. Despite the Greenheart Resources Group have been loss-making during the review
period, the Greenheart Resources Group still had net asset value of approximately HK$340.0
million (after taking into account the adjustments of the carrying fair value of the assets acquired
and liabilities assumed upon acquisition of the Greenheart Resources Group in 2007 made on the
consolidated financial statements of the Group) as at 30 June 2014.
On the basis that (i) the consideration for the transfers of the Debt Interests, comprising
both the principal amount and any accrued but unpaid interest as of the date of completion of the
Greenheart Resources Agreement, will be on a dollar-for-dollar basis; and (ii) the positive net asset
values of both the Mega Harvest Group and the Greenheart Resources Group as discussed above,
we are of the view that the Sale of the Debt Interests is fair and reasonable.
As mentioned above, Silver Mount has the co-sale right to require Sino-Capital to cause
Newforest to purchase the shares of Greenheart Resources it holds and the interests in its loans to
Greenheart Resources. The co-sale right in respect of the Sino-Capital Loans is only exercisable
if the co-sale right in respect of the Greenheart Resources Shares is exercised simultaneously. In
our analysis as set out in the paragraph headed “(c) Non-exercise of co-sale right in respect of
the transfer of the Greenheart Resources Shares” under the section headed “5. The Silver Mount
Waivers” in this letter above, it is considered acceptable to Silver Mount of not exercising the cosale right in respect of the transfer of the Greenheart Resources Shares. Given the above and on the
basis that the terms of the transfer of the Sino-Capital Loans are fair and reasonable, we concur the
view of the Directors of not exercising the co-sale right in respect of the Sino-Capital Loans.
7.
The Special Deals
Newforest’s purchase of the Greenheart Resources Shares from Sino-Capital and the Sale
of the Debt Interests constitute special deals on the part of the Company under Rule 25 of the
Takeovers Code.
As mentioned in the paragraph headed “(c) Non-exercise of co-sale right in respect of
the transfer of the Greenheart Resources Shares” under the section headed “5. The Silver Mount
Waivers” in this letter above, (i) the consideration for the Greenheart Resources Shares represents
a discount of approximately 42.1% to the proportionate unaudited adjusted consolidated net assets
attributable to the shareholders of Greenheart Resources as at 30 June 2014; and (ii) the implied
P/B Multiple of the consideration for the Greenheart Resources Shares is approximately 0.6 times,
which is less than the average of that of the Comparable Companies of 1.9 times. On the above
bases, we are of the view that the consideration for the Greenheart Resources Shares is relatively
low and therefore the transfer of the Greenheart Resources Shares does not confer a special benefit
to Sino-Capital, the vendor of the Greenheart Resources Shares. In addition, the discount of the
Share Offer Price (i.e. HK$0.71 for each Offer Share) to the consolidated net assets of the Company
attributable to the Shareholders as at 30 June 2014 of HK$1.13 per Share is approximately 37.2%,
which is lower than the discount of the consideration for the Greenheart Resources Shares to the net
asset value of Greenheart Resources Group of approximately 42.1%.
54
LETTER FROM SOMERLEY
As discussed in the section headed “6. Sale of the Debt Interests” in this letter above, the
consideration for the transfer of the Debt Interests, comprising both the principal amount and any
accrued but unpaid interest as of the date of completion of the Greenheart Resources Agreement,
will be on a dollar-for-dollar basis. Furthermore, both borrowers of the Debt Interests, i.e. the Mega
Harvest Group and the Greenheart Resources Group, had positive net asset values and therefore
there is limited recoverability risk for the Debt Interests. Based on the above, we are of the view
that the Sale of the Debt Interests does not confer a special benefit to Sino-Capital and/or EPGL,
the vendors of the Debt Interests.
Based on the above, we are of the view that the terms of the Special Deals are fair and
reasonable as far as the Company and the Independent Shareholders are concerned.
DISCUSSION AND ANALYSIS
The principal activities of the Group comprise log harvesting, lumber processing, marketing
and sales of logs and lumber products. The Group operates its business mainly in two geographical
location, namely New Zealand and Suriname. The overall financial performance of the Group were not
very satisfactory. In particular, the Suriname division has not yet generated positive cashflow from its
operations. In addition to the negotiations of forest concession levy with the Suriname government, the
management of the Group is implementing various measures aiming to enhance sawmill operational
efficiency, expand capacity and increase the proportion of high value-added lumber products and the
spectrum of wood species to generate higher profit margins for the Suriname business. Due to the losses
made in the last few years and the capital expenditure required for the Suriname operations, the liquidity
positions of the Group remains tight with limited cash reserves and net current liabilities. The current
financing of the Group was largely dependent on borrowings from the controlling Shareholders, related
parties and bank.
The industry outlook is generally positive for the Group in the medium term. However there remain
challenges for the Suriname division to optimise its operations and to arrive at an acceptable result of its
negotiation with the SBB to achieve better economics for its business.
The transactions contemplated under the Greenheart Resources Agreement mainly involves
the transfers of (i) approximately 39.61% equity interest in Greenheart Resources for a consideration
of US$10.0 million (equivalent to approximately HK$78.0 million); and (ii) the Debt Interests for a
consideration of approximately US$53.5 million (equivalent to approximately HK$417.3 million) plus
the principal amount of any additional Sino-Capital Loan borrowed by Greenheart Resources from SinoCapital after the Latest Practicable Date and up to and including the date of completion of the Greenheart
Resources Agreement (which may be up to US$1,033,040 (equivalent to approximately HK$8,057,712)
pursuant to the Greenheart Resources Agreement) and the accrued but unpaid interest on a dollar-fordollar basis, by Sino-Capital and EPGL to Newforest.
The transfer of the Greenheart Resources Shares by Sino-Capital to Newforest as contemplated
under the Greenheart Resources Agreement is subject to Silver Mount’s right of first refusal whereby
Silver Mount has the right to acquire such Greenheart Resources Shares at the same price as that in the
Greenheart Resources Agreement. Further, Silver Mount has the co-sale right to require Sino-Capital to
cause Newforest to purchase the shares of Greenheart Resources it holds and the interests in its loans to
Greenheart Resources. However, Silver Mount has decided to conditionally waive these two rights by not
exercising either the aforesaid right of first refusal or the co-sale right (i.e. the Silver Mount Waivers).
55
LETTER FROM SOMERLEY
The non-exercise of the right of first refusal is considered reasonable given (i) the limited cash
reserves of the Group; and (ii) it is a more conservative approach for not taking up additional risk of the
potential non-performance in the West Suriname operation.
In respect of the co-sale right in respect of the transfer of the Greenheart Resources Shares, we are
of the view that the consideration for the Greenheart Resources Shares under the Greenheart Resources
Agreement is not particular attractive from the point of view of the Shareholders and the Company
based on the P/B Multiples of the Comparable Companies. Moreover, the exercise of the co-sale right
may (i) preclude the Group from obtaining the long-term economic prospects of the entire Suriname
operation after substantial efforts have been made; (ii) reduce the Group’s ability to diversify its income
streams from two different sources; and (iii) result in loss of control and destabilise the entire Suriname
operations. Accordingly, it is reasonable for the Company not to exercise its co-sale right in respect of the
transfer of the Greenheart Resources Shares by Sino-Capital to Newforest to dispose of any part of the
Group’s shareholding in Greenheart Resources.
The co-sale right in respect of the Sino-Capital Loans is only exercisable if the co-sale right in
respect of the Greenheart Resources Shares is exercised simultaneously. Given our analysis above and
on the basis that the terms of the Sino-Capital Loans are fair and reasonable, we concur the view of the
Directors of not exercising the co-sale right in respect of the Sino-Capital Loans.
In respect of the Debt Interests, on the basis that (i) the consideration for the transfer of the
Debt Interests, comprising both the principal amount and any accrued but unpaid interest as of the date
of completion of the Greenheart Resources Agreement, will be on a dollar-for-dollar basis; and (ii)
the positive net asset values of both the Mega Harvest Group and the Greenheart Resources Group as
discussed above, we are of the view that the Sale of the Debt Interests are fair and reasonable.
In terms of the Special Deals, given (i) the relatively low pricing for the Greenheart Resources
Shares as compared to that of the Comparable Companies; (ii) the consideration for the Greenheart
Resources Shares is at discount to the corresponding net asset value; (iii) the dollar-for-dollar basis for
the Sale of the Debt Interests and any accrued but unpaid interest; and (iv) the positive net assets values
of the borrowers, the transfer of the Greenheart Resources Shares and the Sale of the Debt Interests are
considered not conferring a special benefit to Sino-Capital and/or EPGL, the vendors in the Greenheart
Resources Agreement.
The transactions contemplated under the Share Purchase Agreement and the Greenheart Resources
Agreement, if materialised, will result in Newforest taking over the entire investments in the Group held
by the existing controlling Shareholders (i.e. Sino-Capital, EPGL and EPHL), i.e. approximately 62.82%
equity interest in the Company, approximately 39.61% equity interest in Greenheart Resources and the
Debt Interests. The arrangements contemplated under the Greenheart Resources Agreement (i.e. the
transfer of the Greenheart Resources Shares and the Sale of the Debt Interests) are considered reasonable
and a common market practice for third party acquisition where vendor’s interests in both equity and debt
in the target company of the subject acquisition to be completely disposed of to the purchaser, and the
vendor will no longer retain any interest in either equity or debt of the target company upon completion of
the acquisition.
56
LETTER FROM SOMERLEY
OPINION AND RECOMMENDATION
Based on the above principal factors and reasons, we consider (i) the terms of the Special Deals
are fair and reasonable as far as the Company and the Independent Shareholders are concerned; and (ii)
the terms of the Silver Mount Waivers are on normal commercial terms and fair and reasonable as far
as the Company and the Independent Shareholders are concern and the granting of the Silver Mount
Waivers, though not in the ordinary and usual course of business of the Group, is in the interests of the
Company and the Shareholders as a whole. Accordingly, we advise that the Independent Board Committee
to recommend, and we ourselves recommend, the Independent Shareholders to vote in favour of the
resolutions to approve the Special Deals and the Silver Mount Waivers at the SGM.
Yours faithfully,
for and on behalf of
SOMERLEY CAPITAL LIMITED
Kenneth Chow
Managing Director
Danny Cheng
Director
Mr. Kenneth Chow is a licensed person registered with the SFC and as a responsible officer of
Somerley to carry out Type 6 (advising on corporate finance) regulated activities under the SFO and has
over 15 years of experience in corporate finance industry.
Mr. Danny Cheng is a licensed person registered with the SFC and as a responsible officer of
Somerley to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated
activities under the SFO and has over 10 years of experience in corporate finance industry.
57
APPENDIX I
DETAILED TERMS OF THE OFFERS
Information contained in this appendix is reproduced from the Joint Announcement for the purpose
of providing the Independent Shareholders with reference in respect of the key terms of the Offers.
Information reproduced from the Joint Announcement reflects the situation as of the date of the
Joint Announcement. To the best of the Directors’ knowledge and belief after all reasonable enquiries,
there is no material change to the information contained in this appendix since the date of the Joint
Announcement. Detailed terms of the Offers were set out in the Joint Announcement and will be set out in
the Composite Document.
The Joint Announcement also contains the following responsibility statements:
“The Directors jointly and severally accept full responsibility for the accuracy of the information
contained in this joint announcement (other than information relating to Newforest and parties acting in
concert with it and the terms of the Offers) and confirm, having made all reasonable inquiries, that to
the best of their knowledge, opinions expressed in this joint announcement (other than those expressed by
Newforest and parties acting in concert with it) have been arrived at after due and careful consideration
and there are no other facts not contained in this joint announcement, the omission of which would make
any statement in this joint announcement misleading.”
“The directors of Chow Tai Fook Enterprises Limited, Sharpfield Holdings Limited and Newforest
jointly and severally accept full responsibility for the accuracy of the information contained in this
joint announcement (other than any information relating to the Group) and confirm, having made all
reasonable enquiries, that to the best of their knowledge, opinions expressed in this joint announcement
(other than those expressed by the Group) have been arrived at after due and careful consideration and
there are no other facts not contained in this joint announcement, the omission of which would make any
statement in this joint announcement misleading.”
POSSIBLE MANDATORY UNCONDITIONAL CASH OFFERS
As at the date of this joint announcement, Newforest and parties acting in concert with it are
not interested in any Shares, convertible securities, warrants, options or derivatives of the Company,
other than the interest in the Sale Shares under the Share Purchase Agreement. Immediately following
Completion, Newforest and parties acting in concert with it will be interested in 496,189,028 Shares,
representing approximately 62.82% of the issued share capital of the Company as at the date of this joint
announcement. Newforest will be required to make a mandatory unconditional cash offer for (i) all the
issued Shares; and (ii) cancellation of all outstanding Options and acquisition of all Convertible Notes
(other than those already owned or agreed to be acquired by Newforest and parties acting in concert with
it) pursuant to Rules 26.1 and 13.1 of the Takeovers Code, respectively, upon Completion.
As at the date of this joint announcement, the Company has:
(a)
789,889,104 Shares in issue;
(b)
17,488,145 outstanding Options under its Share Option Scheme each exercisable in issue
each exercisable into one Share; and
(c)
Convertible Notes in aggregate convertible into 66,012,987 Shares.
58
APPENDIX I
DETAILED TERMS OF THE OFFERS
Save as disclosed above, the Company has no outstanding options, warrants, derivatives or
securities convertible or exchangeable into Shares or other relevant securities (as defined in Note 4 to
Rule 22 of the Takeovers Code) as at the date of this joint announcement.
Principal Terms of the Offers
Upon Completion, as Newforest and persons acting in concert with it will hold more than 50% of
the voting rights of the Company, the Offers will not be subject to any acceptance or other conditions. The
Offers will be made by VMS Securities Limited on behalf of Newforest in accordance with the Takeovers
Code and on the following basis:
The Share Offer
For each Offer Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HK$0.71 in cash.
The Share Offer will extend to all Shares in issue on the date on which the Share Offer is made
and to any further Shares which are unconditionally allotted or issued after the date on which the Share
Offer is made and before the date on which the Share Offer closes, including any Shares which are
unconditionally allotted or issued on the exercise of Options granted under the Share Option Scheme or on
conversion of the Convertible Notes, other than those held by Newforest and parties acting in concert with
it.
Total consideration for the Share Offer
Upon Completion and based on the Share Offer Price, not less than 293,700,076 Shares (valued
at approximately HK$208,527,000, assuming no outstanding Option is exercised between the date of the
joint announcement and up to the date of Completion) and not more than 311,188,221 Shares (valued at
approximately HK$220,944,000, assuming full exercise of the Outstanding Options between the date of
this joint announcement and up to the date of Completion) will be subject to the Share Offer.
Comparisons of value
The Share Offer, valued at HK$0.71 per Offer Share, represents:
(a)
a discount of approximately 21.1% to the closing price of HK$0.90 per Share as quoted on
the Stock Exchange on the Last Trading Day;
(b)
a discount of approximately 16.7% to the average closing price of approximately HK$0.852
per Share as quoted on the Stock Exchange for the 5 consecutive trading days up to and
including the Last Trading Day;
(c)
a discount of approximately 16.8% to the average closing price of approximately HK$0.853
per Share as quoted on the Stock Exchange for the 10 consecutive trading days up to and
including the Last Trading Day; and
59
APPENDIX I
(d)
DETAILED TERMS OF THE OFFERS
a discount of approximately 14.4% to the average closing price of approximately HK$0.829
per Share as quoted on the Stock Exchange for the 30 consecutive trading days up to and
including the Last Trading Day.
Highest and lowest prices
During the six-month period preceding the date of this joint announcement and up to and including
the Last Trading Day:
(a)
the highest closing price of the Shares as quoted on the Stock Exchange was HK$0.92 on 9
October 2014; and
(b)
the lowest closing price of the Shares as quoted on the Stock Exchange was HK$0.50 on 7
May 2014, 13 May 2014, 16 May 2014, 19 May 2014, 21 May 2014, 9 June 2014 and 12
June 2014.
The Option Offer
For cancellation of each Option with an exercise price of:
HK$0.51 (17,488,145 Options in total) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HK$0.20 in cash.
The Option Offer price of HK$0.20 for Options with an exercise price of HK$0.51 represents the
difference between the exercise price of HK$0.51 and the Share Offer Price.
Total consideration for the Option Offer
The maximum consideration Newforest will be required to pay under the Option Offer is
approximately HK$3,498,000, assuming that none of the Options have been exercised in the period
after the date of this joint announcement and before the date on which the Option Offer closes, and full
acceptance of the Option Offer by all holders of Options.
The Convertible Notes Offer
For each US$1.00 face value of the Convertible Notes . . . . . . . . . . . . . . . . . . HK$2.76 in cash.
The Convertible Notes Offer will apply to the outstanding Convertible Notes in issue on the date on
which the Convertible Notes Offer is made and will not apply to any Convertible Notes which are or have
been converted into Shares prior to the close of the Convertible Notes Offer.
The offer price for the Convertible Notes is HK$2.76 for each US$1.00 face value of the
Convertible Notes determined, in accordance with Rule 13 and Practice Note 6 to the Takeovers Code,
as the “seethrough” consideration for each Convertible Note being the number of Shares into which
the Convertible Note is convertible multiplied by the Share Offer Price. The Convertible Notes are in
aggregate convertible into 66,012,987 Shares which when multiplied by the Share Offer Price (HK$0.71)
per Share values the total Convertible Notes Offer at approximately HK$46,869,000.
60
APPENDIX I
DETAILED TERMS OF THE OFFERS
Total Consideration
The total amount required to satisfy full acceptance of the Convertible Notes Offer is approximately
HK$46,869,000, assuming full acceptance in respect of the whole principal amount of the outstanding
Convertible Notes of US$17,000,000.
Financial Resources
Newforest intends to finance the Offers from the internal resources of Newforest Group. VMS
Securities Limited, being the financial adviser to Newforest in respect of the Offers, is satisfied that
sufficient financial resources are available to Newforest to satisfy full acceptance of the Offers.
Settlement of Consideration
Payment in cash in respect of valid acceptances of the Offers will be made within 7 Business Days
of the date on which the duly completed acceptances of the Offers and the relevant documents of title are
received by or on behalf of Newforest to render such acceptance complete and valid.
Further Terms and Conditions of the Offers
The Offers are not subject to any acceptance or other conditions. The Offers are subject to the
further terms set out below:
(a)
The Offers will be made in compliance with the Takeovers Code and the rules and
regulations of the Stock Exchange and will be subject to the further terms contained in this
joint announcement and the Composite Document.
(b)
The Share Offer will extend to all Shares in issue on the date on which the Share Offer is
made and to any further Shares which are unconditionally allotted or issued after the date on
which the Share Offer is made and before the date on which the Share Offer closes including
any Shares which are unconditionally allotted or issued on the exercise of Options granted
under the Share Option Scheme or conversion of the Convertible Notes, other than those
Shares held by Newforest and any other member of Newforest Group, and persons acting in
concert with Newforest.
(c)
The Offer Shares and the Convertible Notes will be acquired by Newforest or another
member of Newforest Group fully paid and free from all liens, charges, options, equities,
encumbrances or other third party rights of any nature and together with all rights attaching
or accruing to them, on or after the date on which the Share Offer and the Convertible Notes
Offer are made, including the right to all dividends and other distributions (if any) declared,
made or paid on or after the date on which the Share Offer and the Convertible Notes Offer
are made (i.e. the date of the Composite Document).
(d)
Acceptance of the Option Offer by a holder of outstanding Options will result in the
cancellation and renunciation of those outstanding Options, together with all rights attaching
thereto.
61
APPENDIX I
DETAILED TERMS OF THE OFFERS
Overseas Holders of the Shares, Options and Convertible Notes
It is intended that the Offers will be made available to the Shareholders, and holders of the Options
and holders of the Convertible Notes respectively, including those Shareholders, holders of the Options
and holders of Convertible Notes whose registered address, as shown on the register of members of the
Company, is outside Hong Kong. However, as the making of the Offers to persons not resident in Hong
Kong may be affected by the laws of the relevant jurisdictions, any Shareholder or holder of Options or
holder of Convertible Notes who is not a resident of Hong Kong should inform himself about and observe
any applicable legal and/or regulatory requirements and, where necessary, seek legal advice. Newforest
reserves the right to make arrangements in respect of Shareholders, holders of Options and holders of
Convertible Notes who are not residents of Hong Kong in relation to the terms of the Offers.
It is the responsibility of each Overseas Holder who wishes to accept the Share Offer and/or
the Option Offer and/or the Convertible Notes Offer to satisfy himself as to the full observance of
the laws and regulations of the relevant jurisdiction, including the obtaining of any governmental,
exchange control or other consent which may be required or the compliance with other necessary
formalities or legal and/or regulatory requirements and the payment of any issue, transfer or other
taxes due in such jurisdiction, in connection with the Offers.
In the event that the receipt of the Composite Document by the Overseas Holders is prohibited
by any relevant laws and regulations or may only be effected upon compliance with conditions or
requirements that would be unduly burdensome, the Composite Document, subject to the Executive’s
consent, will not to be despatched to such Overseas Holders. Newforest will apply for any waivers as
may be required by the Executive pursuant to Note 3 to Rule 8 of the Takeovers Code at such time.
Nonetheless, such Overseas Holders will be provided with all material information in the Composite
Document. Any arrangements for such Overseas Holders to collect the Composite Document will be set
out in a further announcement.
Newforest reserves the right to notify any matter, including the making of the Offers, to Overseas
Holders by announcement or by advertisement in a newspaper which may not be circulated in the
jurisdictions in which the Overseas Holders are resident. The notice will be deemed to have been
sufficiently given, despite any failure by an Overseas Holder to receive or see that notice.
Public Float and Maintaining the Listing Status of the Company
Newforest intends to maintain the listing of the Shares on the Main Board of the Stock Exchange
after the close of the Share Offer and will undertake to the Stock Exchange to take appropriate steps
as soon as possible following the close of the Offers to ensure that a sufficient public float exists for
the Shares. Newforest does not intend to exercise or apply any right which may be available to it under
Section 102 of the Companies Act and in accordance with Rule 2.11 of the Takeovers Code to proceed to
acquire compulsorily any Shares outstanding after the close of the Offers.
62
APPENDIX I
DETAILED TERMS OF THE OFFERS
Insufficient Public Float
The Stock Exchange has stated that if, at the close of the Offers, less than the minimum prescribed
percentage applicable to the Company, being 25% of its issued Shares, is held by the public, or if the
Stock Exchange believes that (a) a false market exists or may exist in the trading of the Shares or (b) there
are insufficient Shares in public hands to maintain an orderly market, then it will consider exercising its
discretion to suspend trading in the Shares. In this connection, it should be noted that, upon the closing of
the Offers, there may be insufficient public float for the Shares and therefore trading in the Shares may be
suspended until a prescribed level of public float is attained and/or restored.
Information about Newforest
Newforest is a company incorporated in the Cayman Islands and is directly and beneficially owned
as to 40% by Gateway Asia Resources Limited (a direct wholly-owned company of Wu Wai Leung,
Danny) and as to 60% by Sharpfield Holdings Limited (a direct wholly-owned subsidiary of Chow Tai
Fook Enterprises Limited), respectively. Chow Tai Fook Enterprises Limited is a wholly-owned subsidiary
of Chow Tai Fook (Holding) Limited, a 78.58% owned subsidiary of Chow Tai Fook Capital Limited.
Chow Tai Fook Capital Limited is owned as to 48.98% and 46.65% by Cheng Yu Tung Family (Holdings)
Limited and Cheng Yu Tung Family (Holdings II) Limited, respectively. Save for the entering into of the
Share Purchase Agreement and the Greenheart Resources Agreement, Newforest has not traded and/or
engaged in any business activity since its incorporation.
Other Agreements and Arrangements
Newforest confirms that, as at the date of this joint announcement, neither Newforest nor any
person acting in concert with it:
(a)
has received any irrevocable commitment to accept the Offers;
(b)
has entered into any outstanding derivatives in respect of the shares, securities and interests
of the Company;
(c)
owns or has control or direction over any rights or voting rights over the Shares or
convertible securities, options, warrants or entered into derivatives in respect of securities of
the Company; and
(d)
has borrowed or lent any relevant securities in the Company within the meaning of Note 4 to
Rule 22 of the Takeovers Code.
Newforest confirms that as at the date of this joint announcement, there is no arrangement (whether
by way of option, indemnity or otherwise) of the kind referred to in Note 8 to Rule 22 of the Takeovers
Code in relation to shares of Newforest or the Company and which might be material to the Offers.
Newforest confirms that as at the date of this joint announcement, there is no agreement or arrangement
to which Newforest is a party which relates to circumstances in which it may or may not invoke or seek to
invoke a precondition or a condition to the Offers.
63
APPENDIX I
DETAILED TERMS OF THE OFFERS
Intention of Newforest in Relation to the Company
Newforest does not have any plans to change the Company’s existing business activities. However,
it is the intention of Newforest that, following closing of the Offers, it will initiate a review on the
business activities and assets of the Company, for the purpose of formulating business plans and strategies
for the future business development of the Company.
Newforest has made no decision in relation to the identity of individuals to be appointed to the
Board. Any such change will only take effect in compliance with the requirements of the Takeovers Code
and the Listing Rules.
GENERAL MATTERS
Dealings and Interests in the Company’s Securities
None of Newforest, its ultimate beneficial owner nor parties acting in concert with any of them has
dealt in the Shares, derivatives, warrants or other securities convertible into Shares during the six-month
period prior to 17 June 2014 (being the date of an announcement made by the Company in relation to the
sale and purchase of the Shares pursuant to Rule 3.7 of the Takeovers Code) and up to the date of this
joint announcement.
Stamp Duty
In Hong Kong, seller’s ad valorem stamp duty at a rate of 0.1% (HK$1.00 for every HK$1,000
(or part of HK$1,000)) of the consideration payable will be deducted from the amount payable to
Shareholders and holders of Convertible Notes (as the case may be) who accept the Offers. Newforest
Group will arrange for payment of the seller’s ad valorem stamp duty on behalf of the accepting
Shareholders and holders of Convertible Notes (as the case may be) and will pay buyer’s ad valorem
stamp duty on the acquisition of any Offer Shares or Convertible Notes to the Stamp Office in accordance
with the Stamp Duty Ordinance (Chapter 117 of the Laws of Hong Kong).
64
APPENDIX II
1.
FINANCIAL INFORMATION OF THE GROUP
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP
The audited consolidated financial statements of the Group for the year ended 31 December 2013
has been set out in the annual report 2013 of the Company which was posted on 30 April 2014 on the
Stock Exchange’s website (http://www.hkexnews.hk). Please also see below the link to the annual report
2013:
http://www.hkexnews.hk/listedco/listconews/SEHK/2014/0430/LTN20140430766.pdf
The audited consolidated financial statements of the Group for the year ended 31 December 2012
has been set out in the annual report 2012 of the Company which was posted on 30 April 2013 on the
Stock Exchange’s website (http://www.hkexnews.hk). Please also see below the link to the annual report
2012:
http://www.hkexnews.hk/listedco/listconews/SEHK/2013/0430/LTN20130430382.pdf
2.
MATERIAL ADVERSE CHANGE
The Directors confirm that, save for the expected significant loss attributable to equity holders of
the Company for eleven months ended 30 November 2014 (the “Period”) mainly due to the net effect of
the following:
(i)
the decrease of the gross profit of New Zealand radiata pine business as a result of a decrease
of the average selling price and an increase in non-cash forest depletion costs (which
reflected the increase of the fair value of the plantation assets as at 31 December 2013) and
an increase in unit harvesting cost due to the appreciation of the New Zealand dollar and
higher trucking costs due to longer trucking distances;
(ii)
the decrease in the gross profit of Suriname hardwood business due to clearance sales of
some aged log inventories and increases in production costs, mainly due to operational
inefficiency and the unexpected significant increase in the forest concession levy announced
by the Suriname Government in early 2014, details of which are set out in the profit warning
and inside information announcement of the Company dated 14 July 2014 (the “Profit
Warning Announcement”) during the Period; and
(iii) The export price of New Zealand radiata pine has recently stabilized and the price of A
grade pine recovered from its lowest level of US$126.3 per m3 at the end of June 2014 to an
average of approximately US$139 per m3 during the last quarter of 2014, and the changes of
the timing and volume of harvesting in order to maximize the return of the entire plantation
assets, it is expected that at 31 December 2014 there will be a significant reversal adjustment
to the substantial non-cash fair value loss on the New Zealand plantation forest assets of
HK$66.9 million, which was provided for the six months ended 30 June 2014 and disclosed
in the Profit Warning Announcement.
there has been no material adverse change in the financial or trading positions of the Group since
31 December 2013, being the date which the latest published audited financial statements of the Group
were made up, and up to the Latest Practicable Date.
65
APPENDIX III
1.
GENERAL INFORMATION
RESPONSIBILITY STATEMENT
This circular, for which the Directors collectively and individually accept full responsibility,
includes particulars given in compliance with the Listing Rules for the purpose of giving information
with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best
of their knowledge and belief the information contained in this circular is accurate and complete in all
material respects and not misleading or deceptive, and there are no other matters the omission of which
would make any statement herein or this circular misleading.
Information and confirmation relating to Newforest, its associates and parties acting in concert
with it, and the Offers set out in this circular have been duly extracted from the Joint Announcement
or provided by the respective parties. The Directors jointly and severally accept responsibility for the
correctness and fairness of reproduction or presentation of such information.
All Directors jointly and severally accept full responsibility for the accuracy of the information
contained in this circular and confirm, having made all reasonable inquiries, that to the best of their
knowledge, opinions expressed in this circular have been arrived at after due and careful consideration and
there are no other facts not contained in this circular, the omission of which would make any statement in
the circular misleading.
2.
DISCLOSURE OF INTERESTS OF DIRECTORS AND CHIEF EXECUTIVE
As at the Latest Practicable Date, the interests and short positions of the Directors and chief
executive of the Company in the Shares, underlying Shares and debentures of the Company or its
associated corporations (within the meaning of Part XV of the SFO) which were required to be notified
to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including
interests and short positions which the Directors and the chief executives of the Company were taken or
deemed to have under such provisions of the SFO), or were required to be entered in the register required
to be kept pursuant to Section 352 of the SFO or otherwise required to be notified to the Company and
the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers
contained in Appendix 10 to the Listing Rules (the “Model Code”) adopted by the Company were as
follows:
66
APPENDIX III
GENERAL INFORMATION
Long position in the Shares and underlying Shares
Approximate
Number of
Percentage of
Shares and the total issued
underlying shares share capital of
Name of Director
Capacity
interested
the Company
Hui Tung Wah, Samuel
Beneficial owner
3,009,778 (Note 2)0.381
Family interest (Note 1) 75,0000.009
Simon Murray
Beneficial owner
2,035,889 (Note 3)0.258
Tong Yee Yung, Joseph
Beneficial owner
789,889 (Note 4)0.100
Wong Che Keung, Richard
Beneficial owner
789,889 (Note 5)
Wong Kin Chi
Beneficial owner
939,889 (Note 6)0.119
0.100
Notes:
1.
2.
3.
4.
5.
6.
These 75,000 Shares were jointly owned by Mr. Hui Tung Wah Samuel and his spouse.
It includes 1,579,778 Share Options granted by the Company.
It includes 789,889 Share Options granted by the Company.
It includes 789,889 Share Options granted by the Company.
It includes 789,889 Share Options granted by the Company.
It includes 789,889 Share Options granted by the Company.
Save as disclosed above, as at the Latest Practicable Date, none of the Directors and chief executive
of the Company had any interests or short positions in the Shares, underlying shares and debentures of
the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which
were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of
Part XV of the SFO (including interests and short positions which the Director and the chief executive of
the Company were taken or deemed to have under such provisions of the SFO), or required to be entered
in the register required to be kept pursuant to Section 352 of the SFO, or were required, pursuant to the
Model Code, to be notified to the Company and the Stock Exchange.
3.
DISCLOSURE OF INTERESTS OF SUBSTANTIAL SHAREHOLDERS
As at the Latest Practicable Date, so far as was known to any Director or chief executive of the
Company, the following persons (other than Directors or chief executives of the Company) had an interest
or short position in the Shares and underlying shares of the Company which would fall to be disclosed
to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or were, directly or
indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to
vote in all circumstances at general meetings of any other members of the Group or held any option in
respect of such capital:
67
APPENDIX III
GENERAL INFORMATION
Long position in the Shares and underlying Shares
Approximate
percentage of
issued share
capital of
Number of the Company
Name of Shareholder Number of Shares
Number of Shares underlying shares
(%)
EPHL
Interest of controlled corporation
(Note 1)
496,189,028
–
62.82
EPGL
Interest of controlled corporation
(Note 1)
496,189,028
–
62.82
Sino-Capital
496,189,028
–62.82
Cheng Yu Tung Family Interest of controlled corporation (Holdings II) Limited (Note 2)
496,189,028
–
62.82
Cheng Yu Tung Family Interest of controlled corporation (Holdings) Limited (Note 2)
496,189,028
–
62.82
Wu Wai Leung, Danny Interest of controlled corporation (Note 2)
496,189,028
–
62.82
Fortune Tiger Fund Interest of controlled corporation
Limited (Note 3)
–
66,012,987
8.36
Development Bank of Interest of controlled corporation
Japan Inc. (Note 4)
–
66,012,987
8.36
Beneficial owner (Note 1)
Asia Resources Fund Interest of controlled corporation
Limited (Note 5)
GSHL
Interest of controlled corporation
(Note 5)
68
–66,012,987 8.36
–
66,012,987
8.36
APPENDIX III
GENERAL INFORMATION
Notes:
1.
Sino-Capital is a wholly-owned subsidiary of EPGL, and EPGL is a wholly-owned subsidiary of EPHL. As such,
EPHL and EPGL are deemed to be interested in the Shares in which Sino-Capital is interested by virtue of Part XV
of the SFO. Wang Tong Sai, Eddie, Paul Jeremy Brough and Colin Denis Keogh are directors of EPGL and EPHL,
and Wang Tong Sai, Eddie and Paul Jeremy Brough are directors of Sino-Capital.
2.
Newforest is directly and beneficially owned as to 40% by Gateway Asia Resources Limited (a direct whollyowned company of Wu Wai Leung, Danny) and as to 60% by Sharpfield Holdings Limited (a direct wholly-owned
subsidiary of Chow Tai Fook Enterprises Limited), respectively. Chow Tai Fook Enterprises Limited is a whollyowned subsidiary of Chow Tai Fook (Holding) Limited, a 78.58% owned subsidiary of Chow Tai Fook Capital
Limited. Chow Tai Fook Capital Limited is owned as to 48.98% and 46.65% by Cheng Yu Tung Family (Holdings)
Limited and Cheng Yu Tung Family (Holdings II) Limited, respectively. As such, Wu Wai Leung, Danny, Cheng
Yu Tung Family (Holdings) Limited and Cheng Yu Tung Family (Holdings II) Limited are deemed to be interested
in the Shares in which Newforest is interested by virtue of Part XV of the SFO.
3.
Fortune Tiger Fund Limited owned 23.26% of Asia Resources Fund Limited. As such, it is deemed to be interested
in the Shares in which Asia Resources Fund Limited is interested by virtue of Part XV of the SFO.
4.
Development Bank of Japan Inc. owned 46.51% of Asia Resources Fund Limited. As such, it is deemed to be
interested in the Shares in which Asia Resources Fund Limited is interested by virtue of Part XV of the SFO.
5.
GSHL holds the Convertible Notes. It is a wholly-owned subsidiary of Asia Resources Fund Limited. As such, Asia
Resources Fund Limited is also deemed to be interested in the Shares in which GSHL is interested by virtue of Part
XV of the SFO.
Save as disclosed above, as at the Latest Practicable Date, so far as was known to any Director or
chief executive of the Company, no person (other than Directors or the chief executive of the Company)
had an interest or short position in the Shares and underlying shares of the Company which would fall
to be disclosed to the Company under the provisions of Division 2 and 3 of Part XV of the SFO, or was,
directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying
rights to vote in all circumstances at general meetings of any other member of the Group, or held any
options in respect of such capital.
4.
DIRECTORS’ INTERESTS IN CONTRACTS AND ASSETS OF THE COMPANY
As at the Latest Practicable Date:
5.
(a)
none of the Directors had any direct or indirect interest in any assets which had been, since
the date to which the latest published audited consolidated accounts of the Company were
made up (being 31 December 2013), acquired or disposed of by or leased to any member of
the Group, or were proposed to be acquired or disposed of by or leased to any member of the
Group.
(b)
none of the Directors was materially interested, directly or indirectly, in any contract or
arrangement entered into by any members of the Group which was subsisting at the Latest
Practicable Date and which was significant in relation to the business of the Group.
COMPETING INTERESTS
As at the Latest Practicable Date, so far as was known to the Directors, none of the Directors or any
of their respective close associates had any interests in a business which competes or is likely to compete,
either directly or indirectly, with the business of the Group.
69
APPENDIX III
6.
GENERAL INFORMATION
QUALIFICATION AND CONSENT OF EXPERT
(a)
The following is the qualification of the expert who has given opinion or advice contained in
this circular:
NameQualification
Somerley
7.
A licensed corporation to carry out Type 1 (dealing in securities)
and Type 6 (advising on corporate finance) regulated activities
under the SFO
(b)
As at the Latest Practicable Date, Somerley had no shareholding in any member of the Group
or the right (whether legally enforceable or not) to subscribe for or to nominate persons to
subscribe for securities in any member of the Group.
(c)
Somerley has given and has not withdrawn its written consent to the issue of this circular
with the inclusion of its letter and references to its name in the form and context in which
they appear respectively.
(d)
As at the Latest Practicable Date, Somerley did not have any interest, direct or indirect, in
any assets which have been, since 31 December 2013, being the date to which the latest
published audited accounts of the Company were made up, acquired or disposed of by or
leased to any member of the Group, or proposed to be acquired or disposed of by or leased to
any member of the Group.
DIRECTORS’ SERVICE CONTRACTS
As at the Latest Practicable Date, none of the Directors had any existing or proposed service
contracts with the Company or any member of the Group (excluding contracts expiring or determinable by
the Group within one year without payment of compensation, other than statutory compensation).
8.
DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents are available for inspection at the principal place of business of
the Company in Hong Kong at 16/F., Dah Sing Financial Centre, 108 Gloucester Road, Wanchai, Hong
Kong during normal business hours on any Business Day up to and including the date of the SGM:
(a)
the letter from the Board, the text of which is set out on pages 7 to 23 of this circular;
(b)
the letter from Somerley, the text of which is set out on pages 26 to 57 of this circular;
(c)
the written consent from Somerley referred to in the section headed “Qualification and
Consent of Expert” in this appendix;
(d)
the letter of recommendation from the Independent Board Committee, the text of which is set
out on pages 24 to 25 of this circular;
(e)
the Greenheart Resources Agreement; and
(f)
this circular.
70
NOTICE OF SGM
GREENHEART GROUP LIMITED
綠森集團有限公司*
(Incorporated in Bermuda with limited liability)
(Stock Code: 94)
NOTICE OF SPECIAL GENERAL MEETING
NOTICE IS HEREBY GIVEN that the special general meeting (“SGM”) of Greenheart Group
Limited (the “Company”) will be held at Plaza Meeting Room, Regus Business Centre, 35/F., Central
Plaza, 18 Harbour Road, Wanchai, Hong Kong on Tuesday, 10 February 2015, at 10:30 a.m. for
the purpose of considering and, if thought fit, passing, with or without modifications, the following
resolutions as ordinary resolutions of the Company:
ORDINARY RESOLUTIONS
1.“THAT the purchase by Newforest Limited (“Newforest”) from Sino-Capital Global Inc.
(“Sino-Capital”) of (i) 3,036,000,000 ordinary shares (“Greenheart Resources Shares”)
with no par value in the capital of Greenheart Resources Holdings Limited (“Greenheart
Resources”), an indirect non-wholly owned subsidiary of the Company; (ii) the loans
with an aggregate principal amount of US$13,466,960 as at the Latest Practicable Date
(as defined in the Circular) from Sino-Capital to Greenheart Resources (as the same may
be amended and supplemented from time to time) (which amount is subject to change
after the Latest Practicable Date); and (iii) the loan with an aggregate principal amount
of US$40,000,000 from Emerald Plantation Group Limited (“EPGL”) to Mega Harvest
International Limited, an indirect wholly-owned subsidiary of the Company (as the same
may be amended and supplemented from time to time), pursuant to the sale and purchase
agreement dated 31 October 2014 between Sino-Capital, EPGL, Emerald Plantation Holdings
Limited and Newforest (“Greenheart Resources Agreement”) (details relating to the
Greenheart Resources Agreement are set out in the circular of the Company dated 23 January
2015 (the “Circular”)), and the transactions contemplated thereunder, be and are hereby
approved.”
2.“THAT the confirmation in writing issued by Silver Mount Group Limited (“Silver
Mount”), a wholly-owned subsidiary of the Company, to Sino-Capital confirming that Silver
Mount (i) has waived and will not exercise its right of first refusal; and (ii) has waived and
will not exercise its co-sale right, in each case in respect of the Greenheart Resources Shares
to be sold by Sino-Capital to Newforest pursuant to the Greenheart Resources Agreement be
and is hereby approved, confirmed and ratified.”
By order of the Board
Greenheart Group Limited
Paul Jeremy Brough
Interim Chief Executive Officer and
Executive Director
Hong Kong, 23 January 2015
* for identification purpose only
71
NOTICE OF SGM
Registered office:
Head office and principal place
Canon’s Court
of business in Hong Kong:
22 Victoria Street
16th Floor
Hamilton HM 12
Dah Sing Financial Centre
Bermuda
108 Gloucester Road
Wanchai
Hong Kong
Notes:
1.
A member entitled to attend and vote at the meeting convened by the above notice is entitled to appoint one or more proxy
to attend and, subject to the provisions of the Bye-laws of the Company, vote in his stead. A proxy need not be a member of
the Company.
2.
In order to be valid, the form of proxy must be deposited together with a power of attorney or other authority, if any, under
which it is signed or a notarially certified copy of that power or authority, at the offices of the Company’s branch share
registrar and transfer office in Hong Kong, Tricor Tengis Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East,
Hong Kong not less than 48 hours before the time for holding the meeting or any adjourned meeting thereof (as the case may
be).
3.
Completion and return of the form of proxy will not preclude members from attending and voting at the meeting or any
adjourned meeting thereof (as the case may be) should they so wish, and in such event, the form of proxy shall be deemed to
be revoked.
4.
Where there are joint registered holders of any Share(s), any one of such joint holders may attend and vote at the meeting,
either in person or by proxy, in respect of such Share(s) as if he/she were solely entitled thereto, but if more than one of such
joint holders are present at the meeting or any adjourned meeting thereof (as the case may be), the most senior shall alone
be entitled to vote, whether in person or by proxy. For this purpose, seniority shall be determined by the order in which the
names stand in the register of members of the Company in respect of the joint holding.
5.
All the resolutions are to be voted by way of poll except where the chairman, in good faith, decides to allow a resolution
which relates purely to a procedural or administrative matter to be voted on by a show of hands.
72